The Big 4 together spent more than $14 million last year to lobby politicians, according to the Center for Responsive Politics (www.opensecrets.org). Look no further than Wells Fargo's lobbying disclosures (in Figure 1) to see a clear example of the wirehouses' growing concern and their accelerated efforts to impede competition. In fairness, a major chunk of Wells Fargo's lobbying budget no doubt was spent to defend its banking business, not just the brokerage unit. All of that money seems to be paying dividends already:
In January, after investment advisors had already seen significant changes to their registration, reporting and record-keeping requirements because of Dodd-Frank, the Treasury Department's Financial Crimes Enforcement Network coincidentally announced that it would be reproposing a rule requiring certain investment advisors to establish and implement anti-money-laundering programs. This, despite the fact that advisors were previously exempt from the requirement as long as they maintained their clients' assets with a third-party independent custodian.
Despite overwhelming (although I think shortsighted) support for a uniform standard of fiduciary care to be adopted for both broker-dealers and investment advisors, lobbying groups have effectively mired the issue in debate, arguing that it would be unfair to require B-Ds to adopt the existing advisor standard. Apparently, they've convinced the SEC that a proper cost-benefit analysis is necessary to avoid unintended consequences that could "harm" investors.
There continues to be talk that Finra ought to step in as a self-regulatory organization for advisors, despite the fact that there is no evidence an SRO for advisors is necessary. An SRO would pose undue regulatory burdens on the small and midsize advisories that make up more than 90% of all RIA practices, and many believe that the SEC can effectively oversee advisors by itself.
So how can RIAs more effectively fight against the entrenched establishment and avoid the fate of Mozart?
The answer lies in their establishing a unified voice. The reason that RIAs are winning the battle for client assets and wirehouse talent is the same reason they are losing the battle on the regulatory front-they are fiercely independent. By its nature, the business model for independent investment advice fosters, even encourages, a disparity of viewpoints and precludes any sort of meaningful consensus. There is simply no unified voice to champion the best interests of the RIA.
That needs to change and it needs to change quickly. It will require a coordinated effort led by the industry's pre-eminent RIAs, by elite service providers and by major RIA custodians, an effort that will also need to be supported by anyone else with skin in the game, including industry associations. Their core belief should be that investors' best interests are served when they have unfettered access to unbiased advice, and that the RIA business model best serves this ideal. With individual agendas pushed aside, these groups have the resources to defend their independence and remove competitive barriers, impediments and hurdles to level the playing field and give voice to the independent movement.
Brian Hamburger, JD, CRCP, AIFA, is the founder and managing director of MarketCounsel, the leading business and regulatory compliance consulting firm to the country's pre-eminent entrepreneurial investment advisors. He is also the founder and managing member of the Hamburger Law Firm.