November 4, 2010
I am not able to find the correct space for this comment and would appreciate forwarding to the correct group for consideration.
My comment concerns the new division of advisors between the states and the SEC.
It seems to me that this approach is incorrect. The new regulations are by dollars under management, but it seems to me that this misses the point. If the intention is to protect the public, then a more logical and effective division of responsibility would be to have the SEC regulate any manager or organization that exercises discretion, and have FINRA and the states regulate any manager or organization that does not.
These two groups are entirely different. The customer is different and the advisor is different. Anyone exercising discretion is clearly and always a fiduciary who MUST put the client's interests ahead of all others. Every regulation for this group should be consistently applied regardless of the size of the firm or the type of customer involved. It is a principles based business and should be regulated by the SEC, who has extensive expertise in this area.
On the other hand, the group that gives advice and makes recommendations and then the CLIENT decides is an entirely different situation. In these cases, the issue is whether there was deception or omission in the disclosure of material information. That comprises an entirely different set of issues than those exercising discretion. This is a rules based business and should be regulated by the states and by FINRA, both of whom have extensive expertise in this area.
Stated another way, if the manager makes the decision, then they should be regulated by the SEC regardless of the size or type of firm. If the client makes the decision, then the business should be regulated by FINRA and the states, regardless of the size of the organization. This should be about the relationship between the advisor and the client if you truly want to protect the client, and not about the size of the firm or net worth of the client.