Regulatory
Congressional Hearing On Bachus-McCarthy Bill Yields Inconlusive Delay
Thursday, June 07, 2012 08:13

Tags: Congress | Dodd-Frank | FINRA | sec

Testimony during the Congressional hearing June 6 on the Bachus-McCarthy bill, the Investment Advisor Oversight Act of 2012, was divided along industry lines. The overall consensus was, however, that the bill was insufficient and would impose too great a cost burden on smaller firms.

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Additional funding for the SEC was another focal point of the discussion. The House Financial Services Committee, the same committee sponsoring the Bachus-McCarthy bill—approved additional funding for the SEC in 2013 the day before the hearing. Yet the amount was $195 million less than requested by President Obama.
 
Although the bill was submitted in bipartisan fashion, the witnesses seemed to be unevenly representative of the brokerage side. At least, consumer advocate Barbara Roper thought so, as we highlighted in the June 6 post. Those arguing in favor of the bill were:
 
Dale Brown, president/CEO of the Financial Services Institute (FSI)
Thomas Curry, past president of NAIFA
Chet Helck, head of Raymond James’ Global Private Client Group
Richard Ketchum, chairman and CEO of FINRA
 
Those arguing against the bill were:
 
John Morgan, Securities Commissioner of Texas and representing the NASAA
David Tittsworth, Executive Director of the Investment Advisors Association (IAA)
 
The argument for the bill was that the industry needs more oversight of retail investment advisors to better protect individual investors. It was also argued that the bill would restore oversight that is already mandated and which the SEC seems unable to provide instead of adding more regulation.
 
Opponents of the bill said it would unfairly penalize small firms and would add redundancy to the regulatory process for advisors subject to state oversight.
 
Mary Shapiro, head of the SEC, noted that with all the new regulatory mandates from the Dodd-Frank Act and the increased focus on the municipal market, she questions whether the SEC would have the wherewithal to adequately oversee FINRA, as well. FINRA has stepped forward in an attempt to garner the appointed SRO spot outlined by the Bachus-McCarthy bill.
 
The ultimate result of the hearing is that enough questions arose to delay its approval from the expected late June date to possibly fall. The hearing seemed to open the door for a great deal more commentary from the industry and also to input on how to improve the bill to make it truly effective and less burdensome.

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Bachus-McCarthy Bill Exempts Those With Wealthier Clients, Leaving Small Firms To Bear The Bulk Of The Burden
Wednesday, June 06, 2012 08:39

Tags: Congress | FINRA | regulation | SRO

If you’ve thought that advisors are not expressing opposition to the Bachus-McCarthy bill and the idea of creating an SRO to oversee both brokers and independent advisors, you probably haven’t talked to anyone in Massachusetts. A survey conducted there among 300 advisors in the state firmly—as in 98% kind of firmly—shows opposition to the House Financial Services Committee’s proposition.

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Sixty-nine percent of that 98% said the impact would be significant. They would have to reduce staff and funnel other funds from areas like client service to pay the membership fees. Others said it would drive them out of business.
 
Ironically, there seem to be some loopholes in the proposed bill. Consumer advocate Barbara Roper brings attention to the fact that some advisors who have wealthier clients would be exempt. Advisors whose clients invest in hedge funds, charitable funds, retirement plans, and pooled mortgages would be, apparently, exempt from having to join an SRO created by the Bachus-McCarthy bill. Any individual with $5 million or more in investible assets would also be exempt.
 
This would place the burden of SRO membership squarely on smaller firms. Without the coffers of wealthier advisors to even out the costs, smaller firms will have to face options much like those cited by the Massachusetts advisors who participated in the survey.
 
How, then, would this improve oversight of industry firms? It wouldn’t. Instead of better regulation, we’d just have more. Instead of broader regulation, we’d just be doing a class shift that would create the industry’s own version of the 99%.
 
Roper also sheds doubt on the sincerity of the House Financial Services Committee’s quest to provide better oversight. She notes that instead of good, healthy debate, the committee has lined up three witnesses from the broker-dealer community (out of a total of six) and completely shunned input from the FPA, the CFP® Board, or NAPFA.
 
Here’s a list of those slated to testify as well as a link to other information about the Congressional inquiry slated for 10 a.m. Eastern Time on Wednesday, June 6.The site also has videos of hearings that have already occurred and an archive tab so it's likely you'll be able to view the hearing after the fact.
 
This is getting closer to home. If you haven’t yet become involved and have not yet expressed your views on the matter, you may wish to reconsider before things get decided for you. Think one person can’t make a difference? Then maybe you haven’t heard of Mahatma Ghandi.

 

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FINRA Comes Up Short In Examination By Government Accountability Office
Tuesday, June 05, 2012 07:07

Tags: Dodd-Frank | FINRA | registered investment advisors | sec

There’s more action on the FINRA-SRO front as the Government Accountability Office (GAO) proceeds with its examination of the organization as mandated by the Dodd-Frank Act. The GAO examination has nothing to do with the Bachus-McCarthy bill introduced in April but its timing is indeed fortuitous for those opposed to a FINRA SRO role.

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FINRA has been fighting to be the designated SRO as proposed in the recently introduced House Financial Services Committee which laid the foundation for one or more SROs external to the SEC. The bill is designed to take up the slack from the SEC since it is felt the SEC does not have the person-power and funding to monitor the industry sufficiently.
 
The bill would extend FINRAs oversight to independent registered investment advisors as well as the registered reps it already monitors. Some claim that empowering external SROs would cost twice as much as simply giving the SEC the funds that it needs.
 
The GAO study not only looks at FINRA’s regulatory record; it also examines the salaries of its executives. The study urges the SEC to mandate a retrospective review of FINRA’s rules to determine if they are effective, are overly burdensome, or if some—such as the $100 limit on entertainment expenses per client—need to be repealed. It points out that the SEC does not monitor FINRA’s salaries although it does conduct an annual review of its activities.
 
One impetus for examining salaries including retirement plans and incentive compensation comes from the case of Richard Grasso who, while head of the NYSE, garnered a $139.6 million pay package that ultimately resulted in his departure from the exchange. FINRA currently only reports compensation data for its top 10 executives in its annual report and on its tax returns. But that data is outdated by at least six months.
 
The best outcome of the GAO study would be a broader view of what’s needed from a regulatory standpoint and the actual implementation of recommendations as opposed to simply using the study as a tool by bill opponents to defeat the proposition.

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FINRA As SRO Battle Heats Up As Industry Participants Form Lobbying Group
Friday, June 01, 2012 11:18

Tags: FINRA | regulation | sec | SRO

The regulatory fight is heating up against the designation of FINRA as the industry’s self-regulatory organization (SRO). A group of financial services firms including Schwab Advisor Services will meet with lawmakers in Washington, DC on June 7 to argue against the bill introduced by House Financial Services Committee chair Spencer Bachus (R – Alabama) in April.

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The meeting is viewed as a lobbying effort by industry participants against the creation of SROs that would take oversight of industry firms from the SEC. The SEC has been criticized for not policing the industry effectively enough, especially in light of the Madoff scandal and the view that more could have been done to prevent the 2008 credit crisis.
 
Instead, the lobbying group would like to see the SEC retain its oversight role and beef up the support it needs to adequately conduct examinations of industry firms. POGO (the Project on Government Oversight), a government reform group, also opposes the bill (titled the Investment Adviser Oversight Act) and sent a letter to House Financial Services Committee members stating that, in its view, FINRA has an inherent conflict of mission and lacks transparency and accountability.
 
Of course, FINRA takes the opposite stance, saying that POGO failed to acknowledge an SEC admission that it only has the capability to review 8% of the approximately 12,000 registered investment advisors on an annual basis.
 
The SEC study revealing that capability recommended three ways to address the problem: allow the SEC to charge user fees for each exam it conducts, create an additional SRO, or empower FINRA to broaden its oversight to include both brokers and independent RIAs. The industry seems to be gearing up for a significant battle to keep that third option from happening.

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Controversy About Facebook's IPO Has Little To Do With Its Effectiveness As A Marketing Tool
Thursday, May 24, 2012 09:15

Tags: compliance | marketing | Social Media

Despite the controversy about the Facebook IPO, more and more people are spending more and more time on the site. The average amount of time spent daily is 55 minutes. Investors have begun to trust the advice of their peers instead of the marketing efforts of financial institutions. With confidentiality and compliance factors ever on advisors’ minds, there is a continual search for the best way to participate in the Facebook phenomenon while remaining true to industry and firm compliance guidelines.

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Staying up on effective privacy settings on the site is one way to manage this issue. Another is to form groups or communities from advisors’ personal accounts. As reluctant as you may be to establish a Facebook presence, the increasing daily participation of the investing public makes it difficult, even detrimental to your business, to stay away.
 
Being smart and staying on top of changes in Facebook’s privacy settings can make the medium a smart way to build communities with potential clients and to earn their trust. Building relationships and enabling prospects to get to know you within compliance guidelines is the first step in monetizing social media exposure.
 
 

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