Richard Averitt, president of Raymond James Financial Services in St. Petersburg, Fla., agrees. "We really are on the same side. We want the agencies to reassert their authority and create the clear impression in Congress and with the public that they're doing a good job."
Part of the problem is that a couple of states made it look like federal regulators were asleep at the wheel when it came to abusive mutual fund trading and other problems. "That would impact anyone, and I can understand that they're scrambling to be seen as doing their jobs," Averitt says. "But in the process I think there are rules that are difficult and not well designed."
One of the initiatives that sits uneasily with the Raymond James executive, and a number of other senior managers, is the NASD's recent notice that seeks to put the industry's $225 billion in fee-based accounts under a microscope. The notice asks broker dealers to look back over two years at their asset-based accounts with a low number of trades, and be prepared to justify why these customers are better off in fee-based and not commission-based accounts (since the latter may have cost the client less).
The NASD fears broker-dealers are pressuring customers to opt for fee-based accounts because of the recurring revenues they generate, without adding advice or other services in exchange for the fees. Yet regulators like former SEC Chairman Arthur Levitt encouraged brokerages to steer clients towards these accounts to impose a disincentive to churn. "Now they want us to tell them what the clients paid in fees, what they would have paid in commission accounts and if they would have paid less, why they aren't in one," Averitt says.
The brokerage veteran said that it's a mistake to reduce all brokerage business to pure cost and omit the wide range of other considerations, services and client choices involved. "We've been moving to fee-based business for years, so our folks sit on the same side as investors and only get paid more when investors' assets grow. It strikes me that all interests are aligned when that happens," says Averitt. "Now we're being told maybe that's incorrect. I think that criticism is wrong thinking, and I hope regulators have begun to see that."