August 18, 2010
My Brief History - 27 years in the business at Merrill Lynch, Ameriprise, President of Barclay Group Security, Trader First Chicago at CME, Series 7, 24, 27, 63, 65. Life Insurance Agent 20 Years - CFP 1992, CFA 1998. Currently President and owner of my own RIA.
My point is that I have lots of practical experience in all aspects of the Securities Industry in being a fiduciary and a registered representative.
1st - FINRA is in no way equal to the SEC in the thoroughness and completeness of audits having gone through both of the last 20 years.
2nd - The States in no way are capable or competent enough to regulate advisors.
3rd - As a registered representative and life insurance agent there is no comparison in the information or quality of advice given by these sales professionals vs. a registered investment advisor. This is not due to the competency of the professional but the limitations of their compliance and legal standards.
No matter what you do with the Fiduciary Standard you cannot in any way allow sales people (insurance agents and registered representatives) to be represented to the public as equivalent to Fiduciaries or Registered Investment Advisors. There is an institutionalized culture of sales in all broker dealers that is not equivalent and can never be equivalent. By labeling Fiduciaries as equivalent to these sales professionals you are harming the American public. This action is the equivalent to a person receiving medical care from a Drug Company Representative and believing they are receiving the same advice as from a Doctor. Yes, the patient may in both cases receive Lipitor as the treatment for high Cholesterol but the advice is not the same. The drug rep is limited to what they are selling and not liable to the patient.
Either someone is working and earning their paycheck from the client or their firm. You cannot serve two masters. All register representatives work for and are compensated and supervised by their broker dealers. They do not have a duty to the client, but to their employers. The only case where this is not true is in the case of Trust Companies where they are held to Fiduciary Standards.
There is nothing wrong with being a sales person. However, the average American has no idea that the "investment professional" is working for a firm that limits the products they can offer and adjusts their compensation according to what is good for their firm. Insurance agents are the most limited in products they can offer. It is not fair to any consumer to imply that a life insurance agent or broker is the same an Registered Investment Advisor operating under a fiduciary standard.
Sales Professionals working under a best efforts standard are a critical part of the financial services industry. However, the government needs to label things clearly for the consumer and let the consumer decide.
You need to provide two separate clear classifications for investment professionals.
Brokers and Agents operating under a best efforts standard and regulated by FINRA. Titled Securities Sales Professionals.
Fiduciaries operating under the SEC and titled Registered Investment Advisors.
When I shop for a house or a car or an appliance I know I am dealing with sales professionals and act according. When I deal with my Doctor I have a different relationship. It is tantamount to endorsing FRAUD to allow an investment sales professional to imply they are acting as a Fiduciary for their client. I realize it is more difficult, but both approaches to providing investment services are valid. However, they require two separate approaches.
The SEC is presently capable of enforcing a system for Fiduciaries while FINRA is not. One SEC examination is worth 3 FINRA examples in thoroughness. So, do not be so fearful in the quantity of exams you deliver.
Simply have the SEC set the standards and regulate Registered Investment Advisors while having FINRA continue to regulator non-fiduciary Registered Representatives.
Simply make the FINRA statement on Cards and Stationary
state not just securities offered by blank firm member FINRA but force the representative to be titled Investment Sales Professional. Investment Advisors should only be used by investment professionals willing to be held to a Fiduciary Standard.
You already have the system in place you just need to create a clearer nomenclature for the public to use to consume with. We presently require McDonalds to disclose more about their food then you require to be disclosed about what type of investment advice the public consumes. When by over the counter drugs i rely on sales information but prescriptions are from my doctor. The same type of dual system needs to be put in place here. I take my doctors advice a little bit differently then a ad from a healthcare company.
Dominick J. Vetrano, CFP, CLU, ChFC, CFA, RHU