Great article about how FINRA is making a power grab to regulate registered investment advisors along with their current oversight of brokers. I have discussed the difference between investment advisors and brokers as well as how the former is regulated by the State or SEC while the latter is regulated by FINRA (see here and here for the whole picture).
As the articles discusses, FINRA, which is a self-regulator organization (SRO), claims that they would do a much better job of regulating financial planners who act as a fiduciary than the SEC and States can do. FINRA points to Uncle Bernie (Madoff) as an example of the SEC’s inability to properly regulate. Fortunately, the Barron’s article points out how FINRA, which oversees not only brokers but the broker-dealer (custodian of client’s assets), failed with Uncle Bernie too. It also notes how FINRA has an enormous conflict of interest in outing bad practices since they are run by the very brokers they are supposedly monitoring. Imagine having inmates guard over other inmates.
What the article doesn’t discuss is the core reason why FINRA wants to regulate independent, fiduciary investment advisors. They want us to fail. The executives at the big wirehouses have been losing clients to independent advisors for years now. We have become a real nuisance to their conflict ridden sales system. Clients can get objective advice from registered investment advisors, and this fiduciary standard doesn’t fit well in a world where moving product is the goal. If FINRA can regulate the small guys, they can drown us in useless paperwork that does not serve the client’s needs. The more time we spend on paperwork the less time we spend getting the word out. This ensures the big houses with their multi-million dollar marketing budget can drown us out.
If you are going to swim upstream to wealth, you need to work with a planner who has a legal obligation to put your interests first. You should also let Chris Dodd and Barney Frank know that you want the fiduciary requirement on anyone providing financial advice or selling financial products and to keep FINRA out of the way.