His remarks came during a speech and press conference at Finra’s annual meeting in Washington, D.C.
Ketchum said brokers are heeding his advice to prepare clients for rising interest rates.
He said brokers are doing a much better job of effectively communicating this danger to investors than they did about warning of the mortgage crisis that led to the 2008 financial meltdown and the Nasdaq bubble at the turn of the century.
However, he said he is still seeing too many investors being pushed into less liquid, long-term mortgages and more risky products like emerging-country debt.
Ketchum praised financial advisors for providing a useful service because many self-directed investors are way too conservative or way too risky.
Finra CEO Questions DOL, Outlines Alternative Model B-D Fiduciary Guidelines
May 27, 2015
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This article offers a refreshingly complete description of Rick Ketchum's comments on this issue, in contrast to much of the trade press coverage focused solely on dramatic headlines. Unfortunately, Mr. Ketchum overlooks several important facts in pushing SEC action as an alternative to DOL rulemaking to address conflicted retirement investment advice. The first is that the SEC's authority is limited to securities, while the retirement market is much broader and many of the worst abuses involve non-securities where the SEC has no ability to protect investors. Only the DOL can adopt consistent standards across all products recommended in retirement accounts, and only DOL can address loopholes in the definition of investment advice under ERISA. SEC action should be seen as a necessary supplement to, rather than replacement for, DOL rulemaking. Second, it is a pipe dream to suggest that the SEC can complete rulemaking before the end of this administration. The Commission has been studying the issue for a decade and actively considering rulemaking for over five years with nothing to show for it. There is no evidence of a consensus among the existing commissioners on the best approach. And, if news reports are correct, two of those commissioners are soon to depart. Meanwhile, Chair White has insisted on tying the fiduciary rulemaking to third party reviews for investment advisers, an entirely new and unstudied proposal with many complex ramifications to be worked out. Third, any approach that relies heavily on disclosure and consent to conflicts is doomed to be ineffective. Some academic research suggests that it could even be harmful. One of the most compelling aspects of the DOL rule proposal is the fact that it backs up its best interest standard with a requirement that firms take meaningful steps to rein in practices, common among broker-dealers today, that encourage their advisers to act in ways that are not in customers' best interests (e.g., setting quotas for the sale of certain products and basing bonuses or payouts on success in meeting those quotas). Here again, the SEC has been studying the issue since the Tully Commission report in the 1990s without taking meaningful action. FINRA's recent study of conflicts stopped at recommending unenforceable "best practices." While we welcome Mr. Ketchum's support for a best interest standard and new restraints on conflicts, it cannot substitute for DOL action for the reasons noted above. If he has practical suggestions for how to improve the DOL rule, he should offer them. The DOL has made clear that it welcomes such input. It is unfortunate that he has chosen instead to echo industry's exaggerated criticisms of the DOL rule proposal while offering an incomplete solution to the problem of conflicted retirement investment advice.