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Registered Investment Advisors
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Guest Post: Robert Powell On The Spokesman For The Fiduciary Movement Who Is Now Accused Of Diverting Retirement Plan Assets To His Own Personal Accounts |
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Thursday, May 17, 2012 14:33
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Tags: advisor industry people | Dodd-Frank | fiduciaries | FINRA | regulation | RIA compliance | RIAs | yen The U.S. Department of Labor, in a complaint filed yesterday in U.S. District Court, alleges an advisor used more than $3.2 million of the retirement savings of workers from multiple employers for personal expenses. No money is left to pay plan participants the benefits owed them, DOL says. Ordinarily, this sort of DOL release wouldn’t be big news. The DOL files dozens of complaints every year accusing advisers of diverting ERISA-plan assets for their personal expenses. But this DOL release this time didn’t feature a nameless and faceless adviser.
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This time the DOL is accusing a one-time spokesman for fiduciaries, a poster-boy for the fiduciary movement. This time the DOL is accusing Matt Hutcheson, a one-time champion of advisors lobbying to continue to be regulated as fiduciaries under the Investment Advisers Act of 1940.
Hutcheson, who in July 2010 testified before Congress about the need for all advisors to put the interests of their clients ahead their own, is accused of doing quite the opposite by the DOL. Hutcheson had previously been crimnially indicted but the DOL charges represent a new aspect of the legal proceedings against Hutcheson, and the DOL action yesterday is making me think about the implications of seeing yet another prominent name among RIAs engulfed in scandal.
It’s time RIAs acknowledge that it’s impossible to prevent an adviser – whether a registered representative or IA rep – from ripping off his or her clients. A crook is a crook, and they come under either regulatory structure, SEC or FINRA.
All advisers –fiduciaries or not – need to be regulated by a single agency. It ought not be FINRA; that agency has a vested interest in protecting the firms it reportedly regulates. It ought not be the SEC; that agency hasn’t done a credible job of protecting investors for decades. And it ought not be the CFP Board or state insurance regulators.
It’s time for a single regulator that oversees all advisers — insurance agents, stockbrokers, RIAs, hedge fund managers, and alternative investment sellers. And others. Maybe even include mortgage brokers.
Right now we have a system in which Americans often get different advice, different products, different everything from different types of advisers depending what licenses they hold, the designations they possess, and the regulatory body that oversees them. It’s just crazy. Other professions don’t operate that way. Doctors are regulated by one body.
There’s no good reason why advisers shouldn’t be regulated by one body. Having just one regulator will benefit everyone, most of all average Americans.
Right now, they don’t stand a chance when there are folks that could do what Matt Hutcheson is accused of doing.
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RIAs Don’t Seem To Care Very Much About The Regulatory Debate; Reaction To Last Week’s FINRA-SRO News Was Muted |
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Tuesday, May 01, 2012 16:06
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Tags: Congress | Dodd-Frank | fiduciaries | FINRA | NAPFA | RIA compliance | RIAs | sec | SRO When news broke last Wednesday about the reintroduction of legislation that would make FINRA the regulator of RIAs, all of the advisor trade publications covered the story. Financial Planning even issued a “breaking news” alert. The reaction since from RIAs has been muted.
At Investment News, the article covering the controversial bill garnered 11 comments. The AdvisorOne story evoked just one comment. The Financial Planning breaking news story has attracted no comments. At Financial Advisor magazine, there have been no comments on the April 25 story. Here on A4A, where we did not offer analysis (until now) but instead linked to orginal reporting on other sites, our two-paragraph snippet on April 25 inspired only two comments. If you're a private wealth advisor, please join Advisors4Advisors (A4A) to get its full benefits. Register now, and we will donate $20 of our $60 membership fee to Bubbles The Clown’s financial literacy program, and you can post an icon on your website saying you support Bubbles' 501(c)3 charitable organization. Plus, get other membership benefits, including: - Analysis daily of issues affecting advisors
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The issue of FINRA becoming the self-regulatory organization of RIAs is arguably the biggest story of the year for RIAs. Which begs the question: Why has the response to the prospect of FINRA becoming the regulator of RIAs been so muted?
The answer partly is that advisors simply don’t care that much — even the RIAs who will be most directly affected.
RIAs know something must be done about the current regulatory regime. It’s broken. With RIAs getting inspected by SEC examiners about once every decade, owners of RIAs know that better regulation is needed.
Do RIAs want FINRA as their regulator? No, of course not. However, like most business owners, RIAs are pragmatic. While RIAs would much prefer that the Securities and Exchange Commission would continue a their primary regulator, they know there is little chance of that happening.
With the obsession to cut government spending sweeping the electorate, it’s political suicide to argue for increasing the budget deficit to expand the SEC bureaucracy. This is the agency that failed to find the $50 billion Madoff fraud after it was provided evidence from an industry expert showing Madoff was likely running a Ponzi scheme.
Frank Armstrong, one of the nation’s most accomplished financial advice professionals, posting a comment on A4A on April 26, said:
“FINRA is my worst nightmare. Corrupt and incompetent. Who is going to look out for investors? My preferred solution is to charge investment advisors a fee sufficient to cover SEC regulation.
For all their shortcomings, many due to underfunding by Congress, at least they are not total todies for the wire houses and broker-dealers. I thought I had left the stench of NASD behind when I went independent 18 years ago.”
Armstrong is smart and practical, and I respect him for all he does. But that does not make him right.
FINRA is the devil you know. If the government creates a new inspection and enforcement program, it will be another kind of demonic bureaucracy. And it will cost taxpayers more than if FINRA does it. That’s just the history of government. The additional examiners and support staff that the SEC will have to hire to handle the added workload would create a new bureaucracy that would enrage you in new ways.
The other reason why it’s unrealistic to expect the SEC to continue regulate RIAs is because of the power, politics, and money. The financial services industry is organized and, relative to RIAs, vastly more able enough to spread around money to help candidates get elected. It’s a machine.
In contrast the behemoth Securities Industry & Financial Markets Association representing Wall Street, the largest industry group in the RIA sphere — investment advisors serving high-net-worth individuals — is the FPA, which is amid a membership slump and seeking ways to reinvent itself.
Moreover, the fee-only RIA business —the core group of advisors fighting against FINRA becoming their regulator — represents a tiny fraction of the financial advice industry. With more than 95% of the financial advisors in the country affiliated with securities brokerages and insurance companies, and doing business on a commission-basis, do you really expect to win this fight?
The fee-only advisors who say they are the financial advice profession are effectively disowning the financial services industry, ignoring the history of forebears, the place from whence they came. It’s high-minded but unrealistic. It just won’t work when you have an entire industry not doing fee-only business.
Advisors know all this. That’s why you don’t see more outrage expressed about the looming prospect of FINRA becoming the SRO for RIAs.
Advisors are focused on their businesses. They’re besieged by the rapid pace of change in software, marketing techniques, and productivity tools. The FINRA-as-an-SRO fight is not an issue they seem to care about that much.
Then again, I’ve been predicting that FINRA was going to become the regulator of RIAs for five years and I have not been right yet.
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Mandatory Advisor Exams Are Out At The SEC, "High-Risk" Screening Is In |
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Monday, March 19, 2012 15:02
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Tags: sec A bit of clarification from the SEC on its examination protocols confirms what many advisors already suspected: the long wait between audits is a matter of regulatory triage.
If you're a private wealth advisor, please join Advisors4Advisors (A4A) to get its full benefits. Register now, and we will donate $20 of our $60 membership fee to Bubbles The Clown’s financial literacy program, and you can post an icon on your website saying you support Bubbles' 501(c)3 charitable organization. Plus, get other membership benefits, including: - Analysis daily of issues affecting advisors
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The SEC's deputy director of compliance, inspections, and examinations, Norman Champ, revealed recently that they're "not doing routine cycle exams" because they "have to be very careful where [they] send these limited resources."
In other words, it's not a matter of waiting in line for your number to come up in the examiners' list. Instead, RIAs go an average of 12 years between audits because the auditors are busy tackling cases on a priority basis.
Situations that look like they present a high risk of hurting investors come up first on the SEC screens, Champ says. They get handled first.
And then, presumably, the auditors are off to put out the next fire, so they may never get to firms that look like they're in good shape.
It might not be the worst approach, especially since it looks like the number of advisor examiners has dropped dramatically in the last few months.
There are now 450 examiners who will be watching around 10,000 firms once mid-range RIAs depart to state oversight in a few months.
That's 22 firms per examiner. Once again, they can spend about two weeks a year studying each RIA under their supervision and then refer problem cases to specialists.
In that case, every firm would get an annual check-up and long-running Ponzi schemes like Bernie Madoff's won't run nearly so long.
Or they can keep putting out fires.
Either way, much like the IRS, the SEC won't say what its red flags are. If crooked advisors knew what the screens were set to detect, they'd change their schemes accordingly to drop back under the radar -- where they may never see an auditor until it's too late.
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Former Orange County Advisor Held On Manslaughter Charge After Client Discovered His Account Was Being Drained |
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Tuesday, March 06, 2012 15:29
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Tags: fraud A week after being barred from the industry, a Santa Monica, California, "financial consultant" now faces charges that he killed a client who found out that he was draining hundreds of thousands of dollars from investment accounts.
If you're a private wealth advisor, please join Advisors4Advisors (A4A) to get its full benefits. Register now, and we will donate $20 of our $60 membership fee to Bubbles The Clown’s financial literacy program, and you can post an icon on your website saying you support Bubbles' 501(c)3 charitable organization. Plus, get other membership benefits, including: - Analysis daily of issues affecting advisors
- Aggregation of news from dozens of sites targeting wealth managers
- Reviews by advisors of practice management applications
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Daniel Becerril II allegedly took $550,000 in "loans" and outright unauthorized transfers from a Russia-born elementary school teacher's account back in 2008, then stabbed the client when the fraud became apparent.
If the Los Angeles Police Department is right, Becerril can add homicide to the more standard charges of money laundering, fraud, and grand theft that advisors who steal from their clients tend to rack up.
Becerril had previously faced FINRA censure for, among other things, depositing a prospect's daughter's $11,500 inheritance into his own account instead of investing it in mutual funds.
The timing here needs to be highlighted. It took FINRA over two years to weigh the inheritance case and bar Becerril from the industry.
Veritrust, which was Becerril's broker-dealer at the time, closed its complaint file back in 2009 after Becerril returned the money.
Becerril still shows up in FINRA Brokercheck as being employed by the firm, even though his registration lapsed immediately after the inheritance complaint came up.
It's not worth speculating about whether more thorough supervision at the time would have revealed something deeper going on behind that $11,500 check.
But you have to wonder if it would helped if the allegations were adjudicated by FINRA before a client turned up dead.
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Six Weeks Before Mid-Size SEC-Registered Advisors Switch To State Regulation |
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Wednesday, February 15, 2012 17:05
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Tags: regulation Compliance professionals say there's going to be a rush of advisors trying to switch their registration from the SEC in about a month, but they admit that the details can get confusing.
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- Aggregation of news from dozens of sites targeting wealth managers
- Reviews by advisors of practice management applications
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Register Now | |
In particular, those who think they're done after they file the paperwork may get an unpleasant surprise as the March 30 deadline looms.
For example, a lot of the state regulators actually check every line on the ADV for deficiencies, unlike the SEC, which seems to have only skimmed for glaring errors.
In other states, advisors need to file additional forms on a regular basis.
Bottom line: all A4A readers with AUM between $25 million and $100 million need to be ready now for the switch, or at least have their place in line. Otherwise, the third-party compliance firms will be busy.
You know what last-minute tax filing is like. Don't subject your registration to that kind of stress.
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