By Chris Hayes, FSI State Regulatory Affairs Counsel
On the road again! For this trip, continuing on the latest in a series of trips comprising FSI’s State Outreach Plan, I was traveling with the latest addition to FSI’s team, Vice President of Regulatory Affairs Robin Traxler. We flew to North Carolina to meet with David Massey, the Deputy Securities Administrator of the North Carolina Securities Division. Joining us at the meeting (besides Administrator Massey, of course!) were Richard Bryant and Ron King of Capital Investment Companies, Thomas Estridge of LPL Financial, and Allan C.J. Russ, Steven Butz, and Perry Boseman of the North Carolina Securities Division.
Our agenda for the meeting included explaining the independent broker dealer business model along with industry priorities; sharing areas where we have worked or sought to work with state regulators and NASAA; learning about the Division’s priorities; discussing ways in which we can be a resource to the North Carolina Securities Division; and (especially important for the state’s advisors and investors) discussing the pending equity crowdfunding bill in the North Carolina legislature.
As to the last item, the proposed North Carolina JOBS Act would implement equity crowdfunding at the state level, and presents several concerns to those in our industry. While the JOBS Act is intended to spur economic growth (and more specifically, that of small businesses), provisions in it would have a significant impact on independent financial advisors for several reasons. Crowdfunding is the collective effort of individuals who network and pool their money (often via the internet) to support efforts initiated by other people or organizations. When an individual invests in a non-equity crowdfunding effort, they will usually get something of nominal value back, such as a certificate or mug. Alternately, if an investor wishes to invest in equity crowdfunding, they are purchasing an interest in that enterprise, be it a vehicle or the corner store.
While it is innovative idea to spur economic growth, there is also the worry because there are different regulations governing independent financial advisors and the creators of crowdfunding efforts, there is the potential for a great deal of fraud to be perpetrated on the middle classes investing in it, and this may negatively affect our industry even if the fraud was not done by independent financial advisors.
Additionally, FSI broker dealer firms may be at risk if financial advisors become involved in this activity, introduce or sell these risky investments to their clients, and the clients then suffer losses as a result.
Due to these concerns, we discussed our support for the bill to go to committee as a “study bill” to further analyze these issues and ensure the best outcome for all involved.
Administrator Massey was very welcoming to FSI and its members at our meeting with him and our group also addressed other issues such as our common desire to support financial literacy efforts. Overall, it was a great meeting of the minds and I look forward to more like it!