August 25, 2010
The suitability standard governing broker-dealers and registered representatives is a robust and heavily enforced standard. Compliance costs are extremely high already and cost both in terms of finances and time. Unfortunately, those costs are eventually felt by clients. Adding another layer of regulation means another layer of compliance, and even more cost to clients. I currently hold my Series 6, 7, 24 and 66. I am examined at least 2 times per year due to the licenses and registrations that I now hold. I am required to have at least 1 administrative day per month by my in-house compliance department wherein they can come in, at will, and inspect my files. I have a part-time worker that does nothing 2 days per week but maintain my files for compliance purposes. Although I do believe that we are held to a very high standard, I believe that layering the burden of more compliance on the advisors will not benefit the client. It will only create another system that must be adhered to that is by and large looking back at what we have done instead of allowing us to put in place measures that ultimately benefit the consumer by looking forward. With all of the additional paperwork that I must currently do, if we add additional responsibilities I know it will impact my ability to serve my clients by actually managing their portfolios and advising them on their financial matters.
I have recruited, hired, trained and developed associates for over 6 years now and know that this standard will not allow many to enter this field and be successful. The attrition rate is already only 11% after 4 years. We have an aging workforce in this industry, and the ability to have a succinct system, and an efficient system, allowing our time to be spent with the client is the best way to prevent the consumer from being harmed. Will it do any good if the advisors that are barely making it in a bad economy have to spend more time, more money and learn new regulations, or will it put them out of business?
I would hate to think how much the consumers will suffer if we are forced to a fee only model to protect ourselves from liability. It would not provide my clients with any better service or unbiased advice. That is already required by me under the current model. Although I do work with clients who have some networth, and have been able to offer fee based services to them, none of them feel that I will do any better of a job for them if I earn commission instead. The cost to cover my liabilities will drive up the costs for my errors and omissions coverage most certainly.
Therefore, as a small business owner, I would have to give strong pause to consider whether staying in business would even be possible under the proposed model of this new fiduciary standard.
Please, I beg of you, consider the grave circumstances and look beyond today's situation with those few bad advisors, to a future of regulation that will allow us to get back to the basics and help the consumers, not regulate us right out of business.