Wall Street’s Self-Regulator Wants More Power And That’s Bad News For The Public

Wall Street‘s self-regulating agency wants to increase its power over more financial advisory firms.

Financial Industry Regulatory Authority’s (FINRA) currently performs financial regulation of member brokerage firms and their employees but now with the endorsement of politicians like Rep. Spencer Bachus it’s pushing to regulate Registered Investment Advisors (RIAs) which are currently regulated directly by the Federal and State Governments.

RIAs, which typically serve as financial advisors to individual investors, are currently required to operate under the highest standard of investor protection called the Fiduciary Standard–putting the client’s interest before their own. Most of Wall Street however operates under the Suitability Standard, which provides a much lower safeguard for investors.

FINRA oversees all the securities dealers in the country and they as a group have no desire to operate under the fiduciary standard. There is a concern that FINRA could over-regulate RIA’s and many small RIA’s would fold, which would harm the public and eliminate completion for its Securities Dealers members. FINRA’s press liaison Nancy Conrad disputes that possibility.

The National Association of Securities Dealers (NASD) a self-regulatory organization changed its name to FINRA in 2007. The change of name obscures the purpose of the organization to this writer and can confuse the public or mislead investors that FINRA is best suited to protect the public from its own members. Some believe that FINRA protecting the public is about as disastrous as the “Fox guarding the hen house”. Again FINRA spokes men states that FINRA

FINRA seems to more accurately protect the interests of the Financial Services Companies as demonstrated by:

  1. FINRA’s CEO opposes the imposition of the current fiduciary standard on it’s Broker Dealer members when he said “…one-size-fits-all approach won’t work for every client, advisor and transaction.” Ms Conrad said that  ”FINRA Chairman and CEO, Rick Ketchum has long supported a fiduciary standard for both securities firms (BDs) and Investment Adviser firms.” Come on, if thats the case why don’t BD Reps operate as a fiduciary now?
  2. FINRA self admits that they have done a poor job with “shortcomings in our examination program”.
  3. FINRA arbitration process seemingly protects the Industry where in over 14,000 FINRA arbitration awards over a ten-year period, investors with large claims against major brokerage firms recovered only 12 percent of the amount claimed.
  4. Another example is who serves on FINRA committees and Board. Bernard Madoff was on the NASD’s Board of Governors and served as Vice Chairman. Mary Schapiro the former FINRA CEO, appointed Mark Madoff, one of Bernard Madoff’s sons, to a regulatory body that reviews disciplinary decisions made by FINRA. Madoff’s niece, Shana Madoff who was a “Compliance Officer” of Madoff until the firm’s collapse was a member of a compliance advisory committee of FINRA. Conrad states that ” Our organization has demonstrated time and time again that it is not afraid to discipline firms or individuals for wrongdoing, regardless of their service on FINRA’s Board.”
  5. Please see the following as to how poorly those companies who have an employee on the FINRA Board have done at regulating their own business practices and employees. Yet the public should believe by FINRA which is governed by its Board of Directors with members for these offending firms are qualified to oversee FINRA which regulates the other Securities Dealers and soon to be RIA’s?

These company violations include willful violation of State and Federal Laws, failure to supervise its own employees, lack of procedural safeguards, submitting false information to the Regulators, improper sales and on and on.

About the author

Michael Chamberlain, CFP®

Hello. My name is Michael Chamberlain CFP®, the principal of Chamberlain Financial Planning and Wealth Management. Our firm is “fee-only” with offices in Sacramento, Campbell and Santa Cruz California. “Serving clients from the mountains to the sea.”

Our mission is to help clients realize their full potential today while planning for an abundant tomorrow through comprehensive financial planning and collaborative decision-making.

As an experienced investment and planning professional, I have had the privilege of being interviewed by and contributing to hundreds of articles in such publications as Money Magazine, Financial Planning Magazine, ABC.com, Forbes.com, Nerdwallet, NASDAQ.com, Yahoo Finance and more.

I hope that you spend some time at the FiGuide site and learn more about the financial matters important to you. To learn more about our firm, visit our website www.chamberlainfp.com or give us a call at 800-347-1340.

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