July 9, 2009
I have been in the financial services industry for over 25 years, the last 8 as a principal in a small (3 person) SEC Registered Investment Advisory firm. I have also been engaged a number of times as an expert witness for plaintiffs taking action against both FINRA Registered Representatives and Registered Investment Advisors. Like most of my colleagues in the financial planning/investment advisory profession, I have done my utmost to put my clients’ interests first and to promote ethical practices in my profession. If you ever were to interview any of my clients, I have no doubt they would communicate that there has always been a high degree of transparency in how I and my firm have communicated with them with respect to where their money is invested, the returns on their investments and the fees that they have been charged. Our firm has not yet ever been audited by the SEC but we have been pro-active with respect to compliance and I am confident that we would attain favorable reviews from any competent auditors about our practices.
In short, there are sufficient regulatory mechanisms in place to protect the investing public’s interests if only there were the personnel and the will to regulate. In the case of egregious violations recently published such as those about Mr. Madoff, Mr. Stanford and others, the problem was not the lack of regulation but the failure of persons in the regulatory agencies to pay sufficient attention to and act on the warning signals they received. I challenge anyone who has practiced in this field or who has been a regulator well respected by practitioners to provide a rational explanation as to how the proposed new regulations, particularly the provisions for surprise audits by outside auditors the fee for which is to be borne by the advisory firm, or deeming an advisory firm to have custody of a client’s assets if the client signs a limited power of attorney to deduct management fees from their accounts, further protect investors’ interests.
I am not now, nor have I ever been opposed in principle or practice to effective and fair regulation by governmental authorities. So mine is not a philosophical or ideological disagreement. What I see being proposed here is an ineffective political response to a practical problem. The investing public’s interests would be much better served by providing the current SEC as presently constituted with the resources and staff to regulate using the rules currently in place. Most important, but impossible to effect by rule changes, is the need for those in positions of leadership to have the knowledge, awareness and will to regulate.
Bernard P. Franceschi, CFP®
McDonald Franceschi, LLC