September 27, 2010
I know this is late:
Background: Bank Examiner with the OCC for 5 years and 23 years as an Investment Compliance officer at a bank, and subsequently at its FINRA subsidiary.
Unlike many commentators, I don't consider this a simple issue. Far too often, we distill a problem down to an either/or proposition where nuance is lost. The real question is whether problems with customer protection are due to the differing standards of care that are in place for varying professions, the regulatory structure over products, or the actual performance of the regulators.
Brokers, Advisors and Insurance Agents have differing standards of care, and they also have different ways of making money. Advisors are able to state that they act in their customer's interest first, because they have already charged a fee for their work. Brokers and Insurance agents don't have this ability. Their income and their value to the individual investor is determined by each trade or transaction. It should also be remembered, that an Advisor's performance is also judged in the short term by the returns he provides to his clients. When the general market is going up, an advisor has a difficult time explaining how a below market return is actually in his client's best interest. Chasing returns is not limited to investors that utilize brokers instead of advisors.
The real question is whether a particular standard leads to better outcomes for the investor. A significant part of that equation relates to regulation. As the current head of the SEC would surely acknowledge, Broker/Dealers are subject to far more frequent reviews than are Advisors or Insurance Professionals. Most people familiar with all types of firms would also acknowledge that B/Ds have far more onerous reviews. This doesn't even take into account the small Advisors and Insurance Professionals that are supervised by state regulators who have varying levels of resources, competence and sophistication.
We all want to protect the customer. However, we need to make sure we don't utilize a "one size fits all" approach, that doesn't even address the real root of the problem. As any good handyman will tell you, painting over rotted wood may make you feel better in the short run, but it doesn't solve the problem.
Harold L. Thomas
Little Rock, AR