July 31, 2010
I have been a registered representative for 26 years and have had supervisory responsibilities for the last 25 years. I have never had a complaint from any of my clients nor have I ever been accused of lack of supervision of those I oversee. I believe that the fiduciary requirements being considered for securities licensed professionals are misguided and based upon misinformation and politics. My belief is based upon:
Financial Services Professionals and broker/dealers are already under intense oversight. The industry is one of the most highly regulated and the situations where violations occur are almost entirely limited to isolated companies or individuals.
Financial Services Professionals and broker/dealers already spend incredible amounts of time and money to comply with current regulations, money that ultimately is passed on to the consumers and time away from providing service to those consumers. Adding additional government restrictions will increase those costs to consumers and reduce the service they receive thus resulting in the opposite of what you are hoping to acheive.
Perhaps most importantly, what you are proposing will certainly result in numerous lawsuits and further costs associated with those. Your agenda is for financial advisors to ALWAYS recommend the BEST product for their clients. But, how do you define "best"? The only way to know which product is best is to look back years and sometimes decades, depending on the clients' investment objective, after the purchase has been made. At the point of the purchase we are only making projections and combining those with the clients' risk tolerance, time frame, investment experience, objectives, etc.
Does "best" mean lowest cost? We all know that lowest cost does not always result in highest value.
Does "best" mean the investment that has the highest return in the clients' category for the last 1 year? 5 years? 10 years? 30 days? If we use that criteria then we are almost always going to recommend the "wrong" product since typically, the high flying funds and stocks of yesterday are not the best performers of tomorrow.
Financial Professionals jobs, just like Doctors, Lawyers, CPA's, SEC Auditors, etc, are to take the information they have available and make quality recommendations based upon that information. We wouldn't hire the cheapest Doctor when we have an advanced medical condition and an attorney's past performance doesn't guarantee that we will win a lawsuit. The oversight of registered representatives and broker/dealers is more than adequate today. The proposed new oversight is a typical government overreaction to being embarassed by failing in the past, in this case to identify blatant criminals like Bernie Madoff. Additional government oversight is unnecesary and adds to the problem not solves it. If FINRA and the SEC are diligent in their duties of regulating existing rules then all but the few bad apples will be properly supervised. Those few bad apples will circumvent any new rules.
My recommendation and request is that you not add additional requirements to financial representative oversight.
Philip R Lukins