July 30, 2010
Portions of the Dodd-Frank legislation are probably unconstitutional as it violates the equal protection guarantees in the Constitution, as well as creating a restraint of trade issue, there are equal employment and civil rights issues as well. It's lack of legal clarity is also problematic.
To force all financial services salespeople into working like an RIA under a "fiduciary standard" instead of having the the free-market choice of the existing "suitability standard", is restraint of trade.
I do not beleieve that the Government can legally make me change the way I choose to do business, or the way in which I am paid. I have chosen to get paid by commissions for successfully solving a client's problems, rather than by charging a fee to my clients for advice which they may, or may not, implement.
Fee based planners do so for one reason only--to generate fees and to level off their own income streams. Many hide behind an air of honesty while they "double dip" their clients all the way to the bank.
This legislation was a knee-jerk reaction to several high profile enforcement failures by existing regulators, ie: Madoff and Stanford. Had existing laws been enforced vigorously both of those criminals would have been caught sooner, thereby lessening the damage and public relations nightmare for the SEC. The SEC needs to hire more cops, not create a bigger bureaucracy.
In my position as a Reg. Rep. and licensed insurance producer, my work is supervised by all of the individual companies I write business for through their own suitability standards and Compliance depts., as well as my Broker/Dealer's Compliance Dept, the State of Illinois, the NAIC, FINRA, and the SEC. There is more than enough oversight now without any new laws, you just need to enforce what you have.
A "suitabiltiy standard" and the idea of the honest, ethical treatment of clients has been around for a long time. Madoff and Stanford were "Advisors", I guess fiduciary standards didn't stop them did it?
Since I am not an RIA (registered investment advisor) I cannot legally use the term "advisor" to describe myself or within my job description or title. The miss-application and usage of the term "advisor" within the text of this legislation forces me to question the enforcability of it, since I am not legally an "advisor", does this Act really apply to me at all?
I do not charge fees to my clients because advisor fees only harm the client. In my 18+ years in the business it is my experience that RIA's are the ones who need more vigorus regulating due to their chronic habit of "double dipping" clients, by selling "advice" then collecting commissions from the products they recommend too, not to mention the understatement of the true cost of all their fees.
My ethics won't allow me to do that. If I can't help a client why should I still get paid? Becoming an RIA is the best way for a poor salesman to make a living. Rather than flushing these poor problemsolvers out of the business, charging fees allows them to stick around and financially harm more clients by making them pay twice for the products they choose.
A better use to the SEC's time and energy would be to look at the use and frequency of "B" share mutual funds in use by RIAs. How about looking into large firms where any Rep at all can sell a "financial plan" to a client regardless of being an RIA of not? How about looking into "wrap accounts" and the undisclosed secret trail commissions from third party money managers?
An additional unintended byproduct of this ill-conceived and poorly thought-out legislation is the fact that unless all financial product salespeople have access to all financial products, offered by all financial service companies, there is no way that we can ever be in compliance with this law.
If we cannot offer the same products as all the other agents and Reps, we can't, by definition, be acting in a "fiduciary manner". We cannot all offer what is "best for the client", unless we can all offer the exact same products and services.
As written, this law will force all of us in the industry to make a subjective judgement and find the product we think is most "suitable" from the finite group of products available to us, rather than what may, or may not, be the "best product" available in the entire marketplace.
This law does nothing to resolve the dilemma of choice, which ultimately, as it is now, is a subjective decision based on how a product best "suits" the client's individual situation. Without universal access to all products you have changed nothing.
For example I work with a small broker/dealer and due to our size we cannot get a selling agreement with some companies like Prudential. In order for me to be able to comply with this legislation you need to amend it and force all carriers to offer all products to all salesmen. Please call the Prudential variable annuity marketing dept. for their take on the idea that Prudential should be forced to sell all their products through all Reps. Let me know what they say.
Rather than put more laws on the books that you cannot enforce, and over-inflate an already overworked bureaucracy, why not just hire more investigators and catch the crooks?
Tell Congress to mind its own business and punish its own thieves and tax cheats. Tell them to give the SEC more money so you can hire another 500 investigators, 10 more for each State, and then you can actually do something to stop crime, enforce current laws, and punish the offenders, not to mention to help with unemployment. Madoff and Stanford were eventually caught by cops. Hire more COPS and catch more CROOKS
Illinois Reg Rep