The Financial Industry Regulatory Authority is looking very closely at advisory accounts in dually registered investment advisor/broker-dealer firms to see if they should be subject to the regulator’s oversight, Morgan Stanley Compliance and Regulatory Group Head Debra Roth said Wednesday.
“If you are not trading, are you really advising the client?” Roth asked rhetorically at a dual registrant seminar for the Practising Law Institute. Others in the industry have raised this issue as well, noting some clients who are charged fees for investment management but aren’t getting much financial advice would pay less if they were charged commissions instead.
Roth warned the attendees that Financial Industry Regulatory Authority and the Securities and Exchange Commission have significantly improved their ability to collect and analyze electronic records from advisory firms and brokers.
“We have found them to be impatient,” the Morgan Stanley compliance executive said.
In dually registered firms, RCS Capital Chief Compliance Officer Joseph Neary said, having separate compliance manuals for investment advisors and broker-dealers can go a long way to persuading Finra the two business operations are distinct.
He noted in the last three or four years, Finra has become much more attuned to the advisory side of financial firms that also offer brokerage services.
Advertising and marketing has become an area of pain for dual registrants, particularly for workers wearing multiple hats and not sure when one hat goes on or off, SEI Investments Distribution General Counsel John Munch said. He added there are fundamental differences in advertising and marketing rules for IAs and BDs.
Finra Eyes Reverse Churning In Hybrid Advisory Accounts
February 19, 2014
« Previous Article
| Next Article »
Login in order to post a comment
Comments
-
I agree with Joe as well. FINRA consistently shows, year after year, that they have no clue how advisors actually work. They just look for a hot topic to prosecute a few random advisors (usually at small independent BDs), to make it look like they're regulating. Meanwhile the big boys just keep breaking the rules and getting bailed out if they cause a collapse. In my mind, FINRA and the SEC are completely captive to the big firms, and serve very little useful function in actually doing anything useful for our industry.
-
If the goal is truly to to find out if advisory fees make sense versus systematic meetings with the Client to see IF any changes need to be made on a regular basis, then FINRA becoming "much more attuned" won't be enough, (Does anone really believe that FINRA needs to be "persuaded" that the two business operations are distinct?) There is a good fit for each individual Client, but I'm hearing too much about pushing for an all-advisory trend, which I think could lead to an eventual drop in the Public's view of Advisors in general. Again, there is a good fit for each individual, and this is what FINRA needs to focus on. However, for those accounts that pay disproportinately too much for the work we put into them, until we start hearing about "crack-downs" on useless annual charges to Clients for 'parking' their accounts, then I guess what John and Jane don't know just makes us richer.
-
I agree with Joe. Planning and executing transactions are an oxymoron.
-
This is perncious. Pursuing a prudent investment strategy means only trading to rebalance or if the client's circumstances change. Actively trading to justify one's fee does not equal added value and in fact destroys it. The implication that a transaction based compensation model, in spite of the inherent conflicts, is somehow fairer or cheaper sounds like yet another attempt by FINRA to avoid the fiduciary standard and use its ability to make rules as a lever for maintaining a watered-down duty of care. The issue really is that AUM managers, to the extent they do not provide comprehensive wealth management services, probably are overcharging for what they do. If they are active, they underperform the markets; if passive, they pursue a low maintentance buy and hold strategy. Neither is worth the typical 1% AUM fee charged by advisers who are essentially just asset gatherers. In any event, a myopic approach that looks just at trading activity is no way to judge value and is symptomatic of the transaction-centric mindset of FINRA.