John Lefferts' Blog

Tuesday, August 7, 2012

The Evil FINRA Witch!

Last month Senator Baccus tabled his bill that defacto pulled RIA’s under the evil rule of FINRA. RIA’s rejoiced singing and dancing in the streets like munchkins in the Wizard of Oz; “Ding Dong, the witch is dead”…the evil FINRA witch! But then, Baccus runs an op-ed in the Wall Street Journal essentially saying that the SEC cannot and will not get the job done and self-regulation is the only reasonable choice. Oh no! The Wicked Witch FINRA is back! RIA’s long for the day where there was no evil witch lurking, audits happened once every 10 years at best and all was well. There’s no place like home. But how do we get back home?...follow the yellow brick road.  

My point here is that believing nothing is going to change and we can all go back to the way it was is tantamount to believing in fairy tales like the Wizard of Oz. It could as easily been written about FINRA brokers fearing the evil Fiduciary Standard. It’s about time to get real.

Both sides of the SRO and Fiduciary argument have been in denial all along. RIA’s slam FINRA at every level yet offer no reasonable alternative solution. And brokers, while saying they support the fiduciary standard (how can you publically not support something in your clients best interests?) are secretly hoping it goes away and  can do business the way it’s always been done. And they’re both dancing down the yellow brick road.   

The fact of the matter is that RIA’s, brokers, agents, financial planners, and whatever other term we call ourselves…we’re all in the same business. We all give “personalized investment advice”. Non-registered insurance agents hiding away from FINRA while selling indexed annuities are almost the same as the fee only asset manager selling a TAMP who is also hiding away from FINRA. They are both making recommendations of asset management products but are not subject to the level of oversight and controls that FINRA places on its registered reps. The government is intending to solve this by “harmonizing” the oversight to a single standard of fiduciary care and holding all accountable to an SRO which is presumably going to be FINRA.

We can and have argued the virtues of each segment of the industry maintaining the status quo. The fee only RIA, many former FINRA registered reps have the “born again” zeal of a former smoker about how they now have the moral high ground. I get that. But this segment of the industry is so small that I really don’t think their sacred high ground will be spared. And the brokers/agents, etc. should be glad that the US is not going so far as the UK which is banning commission sales altogether effective in 2013.

Change is happening whether we want it or not. Rather than fight change, it seems to me to make more sense to help shape it. If it appears that FINRA is the 800 LB Gorilla, then let it be so and propose demands and requests on how it should look. Carve out a separate fee only segment of FINRA run by fee only minded regulators under the moniker of FINRA. Doesn’t that make more sense than touting some law students in Mississippi creating a new SRO? It’s time to get real and stop living in Oz dancing down the yellow brick road hoping it leads them back home to the way it was.  It’s no longer the way it was. It’s time to help create the way it’s gonna be.