July 30, 2010
The suitability standard governing broker-dealers and registered representatives is a robust and heavily enforced standard.
Compliance costs-both in terms of finances and time-are high, and those costs are eventually felt by clients. Adding another layer of regulation means another layer of compliance, and even more cost to clients.
I hold licenses for Life Insurance, FINRA series 6,63 7. The compliance requirements have grown to consume over 30% of my time, reducing not only my producitivity but my ability to properly advise my clients.
I have annual continuing education requirments for my FINRA licneses, and bi-annual state requirements for my insurance licenses. I have ongoing supervisory examinations by my local branch office manager, and my broker/dealer, with compliance meetings twice a year for both the insurance and the securities licenses.
You can't imagine how much paperwork is involved.
There are there areas of compliance that do not add any consumer protection, such as the implied non-suitability of any dealings with clients over age 60.
The liabilities of a fiduciary duty would mean my costs and my ability to serve my clients will deteriorate significantly.
Will moving to a fee-only model result in better, unbiased advice? Not if an advisor can't afford to be there to provide that advice. Moreover,my clients can't afford to pay up front fees and they will not be willing todo so.
The liabilities will certainly drive up my the cost for errors and omissions coverage.
If the liabilities become too great, I and many others will abandon this profession. It's simply not worth the risk and the aggrivation we're being presented with. Which leaves only the brick and mortar banks and Wall Street firms to serve the American public. Given recent events, I think we can all agree that this is not a good idea.