RIAs are shocked by how bad things have gotten in Washington

November 19, 2010 — 7:30 AM UTC by Brooke Southall


A red-faced financial advisor told the esteemed panelists at the front of the room that he could feel his blood pressure rising as they described the process in Washington of establishing a go-to regulatory body and a fiduciary standard.

The advisor, seated at the 9 a.m. session covering advisory regulation [called the Town Hall] of the MarketCounsel Member Summit, said that he couldn’t understand why something ‘entrepreneurial’ wasn’t being done to have the right regulatory body overseeing RIAs. There are 160 total registrants for the Las Vegas conference at the Red Rock Casino that runs through Friday, when Bill Crager, president of Envestnet, and Mike Durbin, president of Fidelity Institutional Wealth Services, will speak.

The advisor was glowering at Marilyn Mohrmann-Gillis of theCFP
Board, David Massey, president of North American Securities Administrators Association and David Tittsworth, executive vice president of the Investment Adviser Association. They had just described frustrations of getting a good
RIAregulator and a true fiduciary standard.

Big takeway

“The big takeaway: Dodd Frank is a big game changer and just because Republicans took over … they’re not going to drop the whole darn thing. If you think they are, you’re smoking something really good.”

FINRA is likely to take over as the SRO and there could be some real changes as a result. There could be the equivalent of a Series 7-type exam that advisors would have to pass. There could also be a net capital requirement for practices. And the exams could have the hard edge of a rigid rule following and have less regulation of getting to the spirit of the rules, Tittsworth added.

“Net capital requirements will get your attention,” he said.

It was after some of these revelations that the RIA again expressed that he was not impressed with the efforts of the panelists to create a better situation. Another person in the back of the room chimed in with his own frustrations.

Eventually, Massey and Tittsworth pushed back. Each organizational head made the point that advisors need to embrace the process if they want more change to occur.

“You exert your influence by being active,” Massey said. “Until they hear from you, they’re going to hear from the lobbyists.”

You can bitch

Tittsworth was also emphatic on this point. “Overthrow the government? Is that an option? It’s hard to explain sometimes how these decisions are made but either you get involved in change or you don’t. You can bitch. It’s a free country….I feel alone out there a lot of the time.”

The breakout of frustration between the panelists and some of the advisors pleased Brian Hamburger, CEO of MarketCounsel who is hosting the event. “They see [the panelists] as Washington insiders. When you’re picking [advisors’] pockets, they’re hitting back. That [emotion is] what we want” as conference principals — especially in a town hall setting.

A third advisor said testily that the lack of manpower at the SEC could be solved if they concentrated their auditing efforts on issues that matter. The woman said a four-day audit of her firm clearly should have taken two if they had focused.

Massey says state regulators have a plan to do “intelligent, risk-modeled examinations.”

Extra sparks

There were even a couple of sparks that flew on the panel itself between Tittsworth and the moderator, Jim Pavia, editor of InvestmentNews.

“I have a beef with you, Mr. Editor of InvestmentNews,” Tittsworth said in a chiding voice.

He explained that he was not pleased that readers had left nasty comments about him on the InvestmentNews website at the end of an article that spoke of him and one comment in particular that recommended that he change his name.

Pavia explained that his publication made sure that the comment wasn’t anonymous so that Tittsworth could take up the issue directly with his antagonist.

“I didn’t invent the Internet,” Pavia added.

Mentioned in this article:

Regulatory Attorney, Consulting Firm, Specialized Breakaway Service
Top Executive: Brian Hamburger

Investment Adviser Association
Top Executive: David G. Tittsworth

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