June 12, 2013
Lyon Capital Management, LLC is a registered investment advisor (RIA) with the S.E.C. We strongly oppose harmonization of broker dealer (BD) and RIA regulation. It is an inherently flawed concept and would likely be overly costly. The professions are too different from each other for harmonization to make sense. (See rationale in next paragraph.) We believe in consumer protection to a reasonable degree and consumer choice to a high degree. Harmonization does not advance either. Effectively enforcing laws and regulations already on the books would enhance consumer protection. A new costly regulatory scheme would likely increase prices for consumers without a concomitant benefit of greater protection. Harmonization would also adversely impact small firms and impede entry of new firms into the business thereby providing consumers with less choice. We do, however, support a reasonable commitment of financial resources to enhance the SECs ability to audit, investigate and enforce existing rules and laws for RIAs.
The industries in question are too different to have them work under a common regulatory regime: BDs operate on the sell side. They are selling securities and other products to their customers. RIAs operate on the buy side. They are purchasing securities for their customers. BDs work for and are compensated by a parent company. RIAs work for and are compensated by their clients. BDs are generally compensated based on some sort of commission or award by an employer. RIAs are generally compensated by their clients based on a level of assets under management. BDs operate under a suitability standard: if a product is suitable it can be sold to the consumer. RIAs operate under a fiduciary standard: they must always act in the best interest of their client. To marry regulations for two such diverse parties is doomed to failure, would be too costly, would diminish consumer safety and would limit consumer choice.
Kate M. Lyon, CFP and Douglass C. Lyon, CFA