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New FSI chairman isn't sugarcoating FINRA's shortcomings but blasts the SEC on porn and Blackberries in this letter

Joe Russo says that 25% of his group's own membership doesn't favor extending FINRA's dominion to RIAs

Wednesday, May 30, 2012 – 5:18 AM by Joe Russo
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Joe Russo: Everyone in D.C. knows that this Congress is never, ever, going to give the SEC more money.


Elmer Rich

Elmer Rich

May 30, 2012 — 4:42 PM

We are all in this together. These are immensely complicated matters — unprecedented in fact.

Not sure what a combative approach and demonizing/finger-pointing and draggin out the other guys unprofessional behavior helps problem-solving.

Now if Russo is posturing to win points — fair enough. The people that elect him need to be placated. Fear is always the best motivator and attention getter. Slamming the other guy works real well too.

However, rhetorical tactics and moralizing derail real problem solving. Russo and his supports need to chose.

BTW, as hard headed marketers, our experience is the more regulation the more comfortable clients are and the faster the business grows. More regulation has always correlated with financial services growing. May not be causal but professionals understand more safeguards are needed as any industry grows, of course.

Joe

Joe

May 30, 2012 — 4:51 PM

One would think from this letter that FSI represents the interests of RIA’s. In reality, FSI represents the interests of dual-registrants.

Fred

Fred

May 30, 2012 — 5:30 PM

Take a close look at the FSI’s website. They represent the interests of independent Broker Dealers and their FInancial Advisors (Representatives). Their members voted for FINRA as the RIA’s SRO because they are afraid of the independent RIA business model, as are the wirehouses. Both groups are looking to stop the erosion of their market share by gaining control over the model that is providing such significant competition. Fully, unconditionally embrace the true fiduciary standard, then maybe you can be my SRO!

Jim

Jim

May 30, 2012 — 8:18 PM

Well, just this year Congress did increase the SEC budget. So much very never doing it. This is the most self-serving opinion I have seen since FINRA’s statements on the matter. Fred was correct when he noted that FSI and its allies have been losing their shirts and Assets to RIAs so they sure would like to control these independent upstarts. We are mainly small business people so not sure how the Republican congress would try to suppress competition and hurt small businesses at the same time if they want to honor their commitments to both. Or are those just talking points for the election?

Fred

Fred

May 30, 2012 — 8:28 PM

Jim:
Follow the money! Republican or Democrat controlled Congress…it doesn’t matter…if big money on Wall Street is doing the speaking.

Peter Mafteiu

Peter Mafteiu

May 30, 2012 — 11:55 PM

Nice letter by a president to the membership. However, as often the case some relevant perspectives are missing, that’s why outside of the membership, really not a lot of value.

1. Fees: we must be really stupid to think (without discussion) that user fees and Finra member fees are different. The ONLY difference is the enrichment of Finra executives (just ask Shapiro). I am embarrassed for our industry every time I hear that point.
2. Examinations: Yes, Finra looks at their members on a regular schedule. However, they have so small of a universe compared to the SEC and the additional responsibilities of the SEC that it is apples and oranges. So the data is, actually, irrelevant. By the way, did their frequent exams protect consumers? No. Read all the articles on violations, enforcement, etc. and its all re-active, not pro-active. Finra’s track record is not great, why does everyone want to pretend it is?SEC does not get a pass but they don’t control their own desitny, congress does. Finra and others can sure manipulate the data!
3. Salaries: NO Finra employee should be allowed to make more compensation than an SEC employee. Period. Shapiro’s package was nice if you are her, otherwse it is and was excessive. This is a not for profit SRO? Really? Good gig if you can get it, for sure.

Where is the discussion about removing Finra and providing those resources to the SEC? Oh, yes, that must be about money and power (and smaller government). Where do we think Finra will find the expertise to regulate IAs? By raiding the SEC – who would not want to go if there is higher compensation and RIA firms have to pay for it??

Seriously, I have never been more disapointed in my industry than I am today and have been for the last few years. Change is good as long as it does not affect me is the bias I guess everyone has as a human being.

Isn’t this really all about Finra’s losses and the opportunity to engage in a growth business, the regulation of investment advisers??

This IS about money and power and the ability to control congress!

I help RIAs, BDs and others in financial services every day. Its shocking what I see each day and then to read these kind of articles. Its like we live on different planets.

Stephen Winks

Stephen Winks

May 31, 2012 — 3:57 PM

THE FSI HAS CAST ITS LOT

The FSI is a brokerage advocacy group (Independent Broker/Dealers) so their support for a brokerage approach to advisory services where the broker is neither accountable nor responsible for their recommendations is no surprise.

The only problem is the FSI and FINRA can not rewrite the law delineating fiduciary standing based on 800 years of common law and supporting authentication based on statute, case law and regulatory opinion letters.

As long as the FSI and FINRA do not support fiduciary standing based on objective criteria, the broker will have a permanently inferior competitive market position relative to advisors who actually are acting in a fiduciary capacity.

FINRA and the FSI should be careful what they pray for, as the unintended consequences will be a catalyst for tens of thousands of principled brokers who will not accept inferior support, inferior value proposition, inferior technology, inferior work flow management, inferior conflict management and inferior compensation at the expense of the best interest of the investing public. FSI’s endorsement of FINRA at the expense of the consumer places the independent broker in a untenable market position that now can only be resolved by a RIA business model that makes advice (fiduciary standing) safe, scalable, easy to execute and manage as a high margin business at the advisor level, at a cost less expensive than a packaged product and a significant increase in advisor compensation.

The FSI has played the cards they were delt with and have abrogated their leadership role in advisory services—as the advisors in FSI membership can now clearily attest. Just because an advisor’s broker/dealer pays their FSI dues does not mean the advisor supports the FSI, just the broker/dealers support FSI. This disconnect counter to the best interest of the investing public is irreconcilable to advisors who by statute must place the consumer’s best interest first.

Perhaps most disturbing is FINRA’s misinformation on several fronts. First is the examinmation of advisors is deemed inadequate. There are hundreds of thousand of brokers of which FINRA claims to have examined 58% last year. This review was not in the same context of an Advisor’s review. FINRA reviews the broker’s broker/dealer and takes the b/ds word for compliance which includes the prohibition of the broker acknowledging they render advice and the prohibition of the broker acknowledging the broker having any ongoing responsibility to act in the consumer’s best interest in fulfilling the brokers fiduciary duties. This sort of examination is counter to the consumer’s best interest and makes the broker neither accountable nor responsible for their recommendations. Does this not disqualify FINRA from a position of trust and responsibility to protect the best interest of the investing public ? A second and most disturbing point of misinformation is that FINRA operates as if it has unlimited funds and has no accountability as to its cost or effectiveness. As a consequence, no thought has been give to use modern authenticated prudent processes and technology that would be far more effective at small fraction of the cost affording far superior consumer protection.

FINRA can not see beyond its traditional role (formerly the National Association of Securities Dealers) of broker advocate at the expense of the best interest of the investing public. Now the FSI has endorsed FINRA a an SRO for Advisory Services—a role in which FINRA has historically failed when it had the opportunity.

This is a sad state of affairs and failed leadership in securing public trust.

SCW

Grey Treed

Grey Treed

August 3, 2012 — 7:13 PM

Wow Mr Elmer Rich It is obvious that your ideological position will not change and I’m not sure if you realize that there are a multitude of economically feasible approaches to running an independent financial services firm but with that being said im not sure that you could be more wrong with your analysis!! When you said (which I was honestly shocked to read) “More regulation has 'ALWAYS’ correlated with financial services growing.” “ALWAYS”?? Really? There are a whole host of gaudy over the top regulations that have demonstrably hindered the financial markets and securities industry in the past. You can be as Ideological as you want, but dont turn you opinion into factual dishonesty! So since we are being so definitive, that is about as ridiculous a statement as I have probably EVER heard!!

and Stephen Winks you are quick to disparage FSI’s endorsement of FINRA as a SRO but I noticed you just denigrate, you offer no solution or even a preference… I mean you wrote a small novel worth of complaints it’s strange you’d just happen to leave out any sort of resolution… ??

-Grey

Stephen Winks

Stephen Winks

August 3, 2012 — 10:36 PM

Grey,

The resolution is obvious, as it cited in my comment at least three times, it is to make the broker accountable and responsible for their recommendations based on objective, non-negotiable fiduciary criteria of statute, case law and regulatory opinion letters. The SEC has established it is the broker/dealer’s responsibility to provide the necessary enabling resources to make it possible for brokers to safely acknowledge fiduciary standing so advice is safe scalable easy to execute and manage as a high margin business. So each broker does not have to reinvent the wheel.

Pretty simple, the industry supports continuous comprehensive counsel required for fiduciary standing.

Now, Grey its your turn. do you have a solution? Do you as an advisor personally think the FSI was well advised to support FINRA as an SRO for advice? Because broker/dealers pay their brokers FSI membership dues, do you really think that FSI is motivated to look after your best interest or the best interest of your broker/dealer which funds the FSI ?

SCW

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