As the broker-dealer and investment advisor worlds merge, the new head of broker-dealer exams at the Securities and Exchange Commission, Kevin Goodman, said the conventional wisdom is broker-dealers want to stay out of the financial advisor space to avoid fiduciary responsibilities.
But Goodman said broker-dealers are converting to advisory businesses because they feel financial advisors have to deal with less red tape.
Goodman spoke to Financial Advisor Wednesday in Washington D.C. He became the leader of the SEC’s broker-dealer exam program in November after serving as acting since May. He supervises a staff of 300 lawyers, accountants and examiners
Goodman has a law degree from Indiana University and a bachelor’s in accounting from Purdue University. He has been with the SEC since 1992.
Here are excerpts from the interview.
FA: How has the convergence of broker-dealers and investment advisors changed the exam operation?
Goodman: The first thing is we are working with the investment advisor program much more. The second is we have engaged in a project with the IA program to better understand how firms approach the broker-dealer and investment advisor spaces differently. The less prescriptive nature of the IA regulatory structure appears to be luring broker-dealer firms to change to that business model.
FA: What impact will SEC Chairman Mary Jo White’s approach to enforcement have on the broker-dealer arena?
Goodman: We share the chairman’s view that addressing broken windows (small problems) promotes a stronger compliance environment. A broken window for a broker-dealer can be failing to file a required report or failing to review required forms that were filed. Minor problems might well coincide with an overall lack of detail in a firm to compliance and risk management. We want to encourage firms to better address these important areas.