When Richard Salmen began serving as president of the Financial Planning Association on January 1, 2009, he came in at a critical time. Stocks were falling, and by February 23 had fallen nearly 50% from their peak levels in October of last year, the Dow cruising below 7,115 points by that time.
Meanwhile, the new administration of President Barack Obama was promising to fix the U.S. financial system with a series of reforms that had the advisor community wondering where they would stand, especially when the Securities and Exchange Commission came under the leadership of former FINRA chief executive Mary Schapiro.
FINRA is the largest self-regulatory organization, or SRO, under the Securities Exchange Act of 1934 (the successor to the National Association of Securities Dealers). The regulatory body writes and enforces rules governing the securities industry as well as enforcing federal securities laws. FINRA also has jurisdiction over all broker-dealers and registered representatives, and has the authority to discipline firms and individuals who violate the rules. Advice-givers have been curious about whether Schapiro's background with FINRA would lead to that body eventually overseeing financial advisors as well.
On February 19, Schapiro met with Salmen, as well as FPA CEO Marv Tuttle and government relations director Duane Thompson. According to Salmen, Schapiro said she planned to bring "a fresh set of eyes" to her new role as SEC chair. From that, Salmen says, he drew this conclusion: "We shouldn't read too much into where she came from, or [conclude] that when she was appointed there was any agenda to make FINRA the SRO for investment advisors."
Salmen recently spoke with Financial Advisor about the challenges and opportunities he sees for advisors under the new administration and newly elected Congress. Besides his new role as FPA president, he's also a senior vice president/senior advisor with Gtrust Financial Partners in Overland Park, Kan., as well as a veteran of Waddell & Reed, Financial Planning Concepts and Legacy Trust Company. (He's also authorized to represent taxpayers before the Internal Revenue Service, and furthermore he's a certified toastmaster with Toastmasters International and a licensed pilot.)
FA: Can you clarify for our readers which advisors are not under FINRA's supervision?
RS: Registered investment advisors are regulated by the SEC directly if they have $25 million in assets under management or more. Less than that and they're regulated by the securities departments of the individual states. FINRA regulates broker-dealers and their brokerage activities.
FA: What would be the point of the SEC imposing an SRO on all advisors, then?
RS: Some of it has to do with the climate for potential change in Washington.
Always in a crisis there's a push to do something, and FINRA has been lobbying for this job for some time. Whereas I think FINRA would like to have the job of regulating RIAs, the difference is RIAs are held to a fiduciary or "[do what's in the] best interests of the client" standard, while for brokers under FINRA the question is whether the product is "suitable" for the client. The fiduciary standard could get watered down if there was a FINRA-run SRO, and might be lowered to a suitability standard. The advisor community doesn't want that to happen.