John Lefferts' Blog

Friday, October 9, 2009

Extreme Arrogance

Belief is a powerful positive force. It can open prior closed doors, bring out talents one may not have thought they had and can help overcome obstacles that previously seemed insurmountable. With such positive outcomes from belief, it's easy to believe to an extreme at the exclusion of all else. But in this world of ebb and flow, yin and yang, summer and winter, few things are absolute all the time, except, of course, death and taxes.



After a trip to Capitol Hill this week to meet with senators and congressmen about Financial Regulatory Reform, it is clear to me and others that the atmosphere is more polarized between Democrats and Republicans than ever before. An attitude of "if you're not for me, you're against me" prevails. All yin and no yang. Belief can be a good thing, but belief without humility can turn into arrogance and extremism. Extremism in politics, religion, business or really anything can be a powerful negative force. Perhaps it's my inherit skepticism that one can be 100% right, 100% of the time that has shaped my relatively moderate views on many things, including politics.


At this unique and transformational period of time in the financial services business, I see the same levels of extreme views being taken within the industry. Speaking with a congressman this week, he made the comment, "perfection is the enemy of the good". In other words, in our fight to make everyone see things perfectly and absolutely our way, nothing gets done. He also said, "in politics, civil war is fatal". By this, he meant that infighting should take place and be resolved behind closed doors and in private. Not doing so in a public civil war risks an outcome that no one can live with. In the effort to get the "I win-you lose" scenario, they end up getting the lose-lose. This is exactly what concerns me about the financial services industry as 26 year old staffers write and mark up legislation that will materially affect our business and livelihood.


With the issue of "harmonization" the lines seem to be drawn to one side being the SEC regulated fee only investment advisor-"don't associate me with a salesman" group, and the other being the FINRA regulated registered reps. While the FINRA RR group is concerned about how and when the fiduciary standard will be applied they have acquiesced to being held to a fiduciary standard. The SEC advisors seem to have taken the extreme position unwilling to bend in any way. In fact, one investment advisor was so bent about being remotely associated with a salesman that he wrote an article in this week's investment news espousing his extreme views.
http://www.investmentnews.com/article/20091004/REG/310049996


He arrogantly infers that FINRA regulated rep's are akin to used car salesmen, and I don't think it was meant in a good way. Let's see,...there are roughly 650,000 FINRA registered reps and about 11,000 SEC regulated investment advisors. It has been cited that a full 1/3rd of all Ponzi schemes come from the RIA's. Simple math tells me that short of 2% of the population between the two are producing 33% of the Ponzi schemes. Does this mean that all investment advisors are crooks? No more than one can infer that all FINRA RR's are unprofessional used car salesmen. Each discipline has it's bad eggs and fortunately they both have far more professionals who are very good at what they do.


In hind sight, It's unfortunate that the various segments of the industry didn't work together before publically waging their civil war protecting their respective turfs. I'm hopeful that as uninformed much of congress is about this issue, that they'll be able to see through the arrogance of a vocal minority protecting their sacred "advisor" turf and find a win-win solution that meets the needs of the American consumer. And as importantly, that the minority of investment advisors who take the extreme view find some humility for the future credibility of the industry.

2 comments:

tcx7a said...

Good Post

Will you pose any interesting ideas to shape this topic's outcome? Should there continue to be a different paradigm between brokers and RIAs?

Tony Carmenate

John Lefferts, CFP,CLU,ChFC said...

Tony-
It seems that every industry group on all sides of the argument want to keep the separation. But with the Obama dictate to "harmonize"towards a fiduciary standard, all are circling the wagons to define it in terms that keeps the status quo...an unlikely outcome. More than likley, we'll head towards what regs look like in the UK and Austrailia where RIA's cannot accept commissions and those who do cannot accept fees. I do have some ideas about what it should look like...but things are well down the road towards another solution. FIRNA is the 900 lb gorilla in this fight.