December 21, 2010
I would like to comment regarding the subject of FINRA being granted SRO authority over RIA's and their IAR's. As the Chief Investment Officer of an RIA firm I would find it very difficult to communicate with our clients in the way which they are accustom to being communicated with if the "regulatory gap" was narrowed between Licensed Brokers and Registered Advisors. I believe that there is a regulatory gap for the right reasons and those reasons are that advisors, as opposed to brokers, are not "selling" products to consumers, advisors have been hired to perform a service as a fiduciary in regard to planning and investment management on a discretionary basis. The brokerage business model is not currently conducive to operate in the capacity of a fiduciary advisor to their clients. This is not good or bad, it is simply a fact the brokers are serving a much different client base which has a much different expectation of what it expects from brokers versus the expectation which advisory client have.
Just because brokers and advisors buy and sell marketable securities does not mean that they should be regulated in the same fashion. These are two very distinct business models much in the same way that an FBI agent differs from a local municipality's patrol officer. They are both in the law enforcement business, but they are entirely different professions requiring different skill sets and focused upon different sectors of our population.
To be very frank, the brokerage industry, which has had a legacy of legal issues over the years in terms of conflict of interest, misleading sell side research, ponzi schemes and the abuse of the suitability rule in favor of the broker versus the client, would love to see advisors put under the same regulatory scrutiny they are under. However, history has shown that advisors have much less tendency to run into these types of issues. For this reason it does not make any sense to burden advisors and disrupt the type of relationship they have with their clients because the brokerage model has proven untrustworthy and in need of strict oversight. Furthermore, all one would have to do is look at the average AUM per client and number of client relationships per advisor versus the average for brokers to see that each serves a very different marketplace in spite of the fact that the operate within the same capital markets.
I hope that commonsense prevails and the SEC does not buckle under political and lobbying pressure and place unneeded burdens on the advisory/planning industry which has had a sterling history of executing their fiduciary responsibility to their clients.