August 24, 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 a series 6, 63, life and health licenses. I am required to go through a one on one in person examination of my files annually. I am required to attend a Firm Element meeting annually to reinforce the compliance standards as well as learn new rules that may effect our best practices. Each and every application for any securities product is scrutinized by the compliance department beforing passing examination.
We spend about half of our time reviewing and completing aspects of compliance. Paperwork, filings, etc...
Because of liability and the litigious society we live in, if I am forced to become a fee only advisor and because the compliance load is too heavy to bare as a commissioned producer, I would be challenged to stay in the business.
Just when American citizens need help and guidance most. We all are being penalized for the actions of a few. The vast majority of us help our clients to acheive a safe secure retirement. Not the opposite.
Unfortunately citiziens are not interested in a Fee only structure. Sure some advisors do this, but many people - realtors, car dealers, bankers all have there profitability and income built into the products and pricing. They generally do not ask for a fee for the service. Clients are generally afront when asked to pay a fee for service that used to be included.
The cost of my Errors and Omissions insurance would surely rise as we set off on a course that penalizes past actions but does not continue to teach and work toward compliance in a forward looking system. That is compliance driven with annual reviews, firm element teaching and oversight by the audit process.