August 2, 2010
Through my active involvment and membership in NAIFA (National Association of Insurance and Financial Advisors)I was made aware of your 30 day public comment period regarding the effectiveness of regulations governing broker-dealers and investment advisers. It is my understanding that the question at hand is whether the legal fiduciary duty governing investment advisers provides greater investor protection than the suitability standard governing broker-dealers.
I would be grateful if you would consider my comments as part of your analysis.
I have been Series 7/Series 63 licensed since 1995. In my 15 years, I have seen an explosion in regulations which further restricts us as professionals. In addition, clients react negatively to the additional levels of compliance we must overcome simply to open or maintain an account for our clients. In my opinion, the costs of additional regulations significantly outweigh the benefits to consumers. I cannot think of another industry where professionals are as regulated as this one.
While proteting the consumer is of utmost importance, there has to be a balance.
Every industry/profession has unscrupulous practitioners. Prosectute them for their actions, rather than judge all registered reps as guilty by way of adding additional restrictions to their practice.
Members of our professional community have made various efforts to convince the public that their method of fees is "better" or "more ethical." It is my experience that providing quality service at an economical value to the client is ultimately a better solution than simply being "fee-only" for example. Marketing the "fee only" brand is just that, "marketing." There is no guarantee that a fee-only advisor is more ethical than a commission-based practitioner. If a commission-based professional helps clients achieve their financial objectives at a lower cost, who served the client better?
Additionally, many commission-based professionals are compensated only if they provide a solution in which a client finds value. Many "investment advisors" make money whether the client makes money or not. Also, many advisors hold themselves out at "financial planners" even though their entire compensation is tied to investments being managed (a narrow focus).
Investment advisors and registered representatives are somewhat different. Let the practitioners choose their method of practice and therefore, their appropriate regulatory body. The two should not be held to the same exact fiduciary standard. All this will do is create more legal fees, and more class-action fees for attorneys. Where does the consumer really benefit from this?
I believe that the vast majority of registered representatives are ethical in their practice. The same as most doctors, most attorneys, and most CPAs.
We have more than enough regulations to prosecute misguided professionals. More regulations will simply increase costs, increase inefficiencies, increase client frustrations, increase class action fees that simply benefit attorneys and ultimately result in customers trying to be "do it yourself" financial advisors. What will be the ultimate cost to society if professionals are driven from the industry due to excess regulations or customers avoid advisors because of the high level of inefficiencies to open or maintain accounts with an advisor?