Why advisors see FINRA as the devil

A “Holier-then-thou” splitting of the investment world into “good guys” and “bad guys” is not only unfair, it is counter productive. If we focus less on protecting our turf and more on what will best serve the interest of the investing public and recognize that most advisors, whatever their employment or compensation structure, care about their clients’ best interest, the public will be well served.

How? Congress is likely to finalize a bill that ultimately requires anyone providing personal advice being held to a principal based fiduciary standard. The ultimate regulator of that duty is likely to be FINRA. As a consequence, in order for the final outcome to resemble a world in which all advisors are held to a substantive fiduciary duty, the SEC will have to enact substantive principal based standards and the regulator (e.g., FINRA) will have to honestly and aggressively enforce those standards. As a consequence we (i.e., those of us currently in the RIA world) have two options; #1 – continue to scoff at the SEC’s motives and call FINRA the devil or #2 – work, to whatever extent we can, with the SEC and a future fiduciary regulator to educate them regarding the unique nature of principals based advice and support their efforts.

Although Option #1 may provide a temporary visceral high, it is counterproductive and unprofessional and will result in our voices being ignored. If you believe as I do that advisors across the spectrum of employment and compensation structures believe in placing their clients’ interest first, Option #2 offers hope. I know I’m an optimist; however, after numerous meetings with SEC Commissioners, staff and FINRA staff, I’ve come to believe that both organizations not only understand the differences between Rules and Principals based standards, they beleive in substantive fiduciary principals and strongly support the application of Principal based standards for those providing financial advice. Their quandary is not how to work around Principals but rather how to make Principal based standards work in the real world. Professionals from the current RIA world can be of the greatest help by working with the SEC and future regulators to assist in developing and implementing realistic standards.

I find my clients, RRs and RIAs alike, are most concerned about how to regain lost trust with their clients, regardless of the standard with which they must comply. The level of passion on both sides of the regulatory debate is fueled both by care for the client and legitimate concerns about the viability of their chosen business, neither of which are mutually exclusive. Or are they? An interesting question for an advisor today is: what conversations are you having with yourself and others, and how are those conversations working for you? IF the answer is they are not working to help you build or rebuild trust with clients, then what conversation would?

Dont forget, Madoff was a BD audited by FINRA several times and FINRA (under Schapiro) did not catch the FRAUD even though they had the tools and authority to match the Madoff IRA books with the BD and failed to do so. The same situation holds for the fraud at Bayou.

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