A big California RIA fires off a letter to Rep. Bachus decrying FINRA as SRO pick

Neil – excellent job, you articulated the problems with the bill very well and I fully concur with your point of view and facts presented. I was in the middle of crafting my own letter but I think I would like to send this off to Bacchus and the committee members saying that I support your position. I hope other RIA’s across the country take the time to write to the committee members as well. We do not need to be regulated by FINRA or an SRO when the SEC just needs to step up or overhaul their program. Patrick J Horan, CFP, ChFC,

Why do we need so many regulators with overlapping responsibilities and turf battles in the first place?

Below are excerpts from our May 31, 2008 letter to the Chairman of the U.S. Securities and Exchange Commission regarding FINRA/NASD’s fifteen year attempt to regulate independent investment advisors. We would be happy to document our severe concerns regarding this proposed legislation as it relates not only to our industry but more importantly to the future of our country. We highly recommend to those who share our misgivings to immediately contact their U.S. Senators and Representatives.

Dear Chairman Cox:

We strongly encourage the SEC to continue to fulfill its crucial responsibility to regulate independent (non-broker/dealer) investment advisors as the integrity of the capital markets is essential to the economic future and stability of America. This is because it is imperative for the government to protect independent advisors’ ability to function without intimidation and repercussions from any entity that does not respect the economic system that created countless opportunities and unprecedented wealth and liberties. Therefore, any recommendation that FINRA (which through their predecessors have habitually been deplorable and illicit examples of broker/dealer and exchange self-regulated organizations or SROs) oversee non-broker dealer advisors is unacceptable to those who care about our future.

Should the SEC choose to relinquish or delegate this authority to an SRO then independent advisors should be regulated by independent advisors with a fiduciary responsibility to maximize returns rather than an external entity whose primary objective is to maximize expenses (whatever the repercussions may be). Secondly, severe criminal penalties must be implemented rather than meaningless and occasional civil fines when rules are broken. Thirdly, the SEC should customarily and clearly state that they – not an SRO – ultimately regulate the securities industry.

Lastly, as George Washington stated: No punishment is too great for the man who can build his wealth upon his country’s ruin.

Neil, thanks for making the time to do this. I can’t imagine the lobbying pressure that the wirehouses must be placing on this move. The best part of the solution: the market is making this transition from suitability to fiduciary happen. I fully agree that the SEC has the capability to monitor the RIA business and keep the sides “patted in” without damaging what’s in the best interests of clients. Keep up the good work.

Thanks for the kind remarks, gentlemen, and for your own obvious efforts in this area. We are certainly outfunded on this issue by FINRA, but perhaps by getting our peers involved and making our clients aware, we can move the needle a bit on this issue. As Alex mentions above, the market is voting with its feet. Hopefully Congress will do their homework.

Neil,

Great job, terrific perspective and a very lucid explanation. Thank you on behalf of our company which is in its 34th year as a wealth manager, currently overseeing about $2.4 billion of assets. FINRA is clearly not in the best intersts of our industry or our clients.

Robert M. Davis, CEO
R. M. Davis, Inc.
Portland, Maine

Excellent analysis and letter. Thank you for taking the time to write it. After 32 years we have definitely been through many supervisory bodies. Let’s pray for the best results. We will need it.