August 1, 2010
I have helped my corporate and individual clients navigate the complex insurance and financial services world for 20 years and the compliance requirements are getting the the point of making my practice, which employs 15 people, unsustainable. Due to the various state, federal and vendor requirements each staff memeber has to spend almost 3 weeks per year on requirments to mainitan our various licenses and contracts. Add in the paperwork requirements now necessary, as compared to years ago, and this adds approximately 3 more weeks. This is 6 weeks per year that we are unable to serivce our clients in the best possible way. This time requirment does not even take into account all the prodcut training and tax law changes that affect all of our clients. In additon we have now had to add a full-time staff person to just review the never-ending regulatory compliance changes. Currently we do not charge our clients but this will probably change due the increased cost in time and actual dollars our firm has to incur. There is no other profession that requires such diligence however our industry is continally targeted by regulators. We have never had a client file a complaint and we always educate our clients so they can make the best informed decisions at that point in their lives. The suitability standard currently in effect looks forward and tries to prevent harm to our clients through ongoing and frequent FINRA and broker-dealer audits and compliance processes.
I completely disagree that the fiduciary standard has protected consumers better. Basically, the fiduciary standard looks back and enforces breaches retroactively through SEC enforcement or private lawsuits. Hindsight is always 20/20 and what was relevant, important and necessary to a cleint in the past may not be the same currently or in future. There is no crsytal ball that can predict the future but it is always way too easy to place blame when looking back. Investment products always involve some varying degree of risk and the client regulations/protections are alwready in place to inform clients of such risks.
We work with a number of middle income clients that are unable to afford to pay for many of the services and advisory services we provide. Therefore we do not currently charge them. However the amount of staff time that must be-redirected to the various regulations is forcing us to re-evalute this position as we may be forced to charge hourly fees to cover our most basic costs. This will certainly drive away the customers that we feel need our help the most. We do not 'push' product but provide a much needed level of expertise, sounding board and advice that these people would not be able to get elsewhere. If they felt there was an easy way to sue because they were convinced that their past returns 'should have been better' because of some attorney advertisement this will cause us to either pullout of this market or ask for such a level of paperwork requirements that these clients will not want to even bother. Either way the customer will lose because they are generally ignored due to the fact that they are too small for the larger firms to provide personalized service.
The Act does not define what the rules are for compliance with a legal "best interest" standard - thus subjecting registered representatives to the potential of never ending lawsuits. For example, is "best" the cheapest recommended product? The "best" premium relative to the benefit of the product? The product with the "best" historic underwriting and service standards? Is it the one from the carrier with the "best" rating? The fiduciary standard in essence adds a vague legal liability standard that looks back (sometimes after many years) and is enforced after the fact by the SEC or trial lawyers who have perfect vision in hindsight.
This is not the direction our government should go in as it will provide even less service and protection for consumers