Regulatory changes can’t wait for midterm elections

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The prevailing sentiment in Washington is that neither party will be able to push through any significant legislation with the midterm elections coming up in November. With members of the House and Senate focused on re-election, the thinking goes, anyone hoping to make headway on changing the regulatory status quo would be better off looking ahead to 2015.

However, independent financial advisers and firms cannot afford to spend 2014 on the sidelines. The regulatory burdens facing our industry will not ease up unless we all stay focused, regardless of the political circumstances.

Rather than hunkering down and waiting for the election results, I would encourage independent financial advisers and firms to stay engaged on the following issues, and to work with industry associations such as the Financial Services Institute Inc. to continue to drive progress in these areas this year.

Protecting firm and client data.

Late last year, the Financial Industry Regulatory Authority Inc. released a concept proposal (not yet a rule) that would establish the Comprehensive Automated Risk Data System. This new system, if ever put in place, would gather broker-dealer and client information in real time from clearing firms and other financial services companies. The potential collection and centralized warehousing of vast quantities of customer data and personally identifiable information raises substantial data security, privacy and liability concerns; in the event of a security breach of FINRA’s systems, the results could be disastrous.

Protecting investors is of the utmost importance for independent financial advisers and firms. We must make absolutely certain that data collection by regulators assures data security, protects investors and does no harm to advisers’ businesses.

Preventing a ban on commissions for retirement advice.

Since 2010, the Labor Department has been working on an expanded fiduciary advice rule that could ban financial advisers from earning commissions from IRA holders and participants in ERISA-covered plans.

Our industry must continue to broaden and deepen our relationships with key lawmakers in 2014 to fight this effort. We must also stay focused on educating members of Congress on the importance of the independent financial advisory business model in serving Main Street American investors, and continue to monitor the DOL’s progress in developing this proposal.

Protecting advisers who choose independence from IRS intrusion.

For years, at the state and national level, independent financial advisers have been lumped in with other industries that misclassify their employees as independent contractors in an attempt to get out of providing employee benefits. This is clearly not the case with independent advisers.

Rather than simply fighting ill-advised solutions that would undermine the independent advisory business model, advisers and firms should work with industry associations to secure a permanent solution at the federal level.

Working to improve FINRA.

While no regulator is or ever will be perfect, our industry should continue its efforts to engage constructively with FINRA this year in order to ensure that independent financial advisers and firms have a true partner in their key regulator — not an obstacle to their success. Engagement on the following four fronts will be crucial:

  • Ensuring that rules proposed and implemented by FINRA go through a vigorous cost-benefit analysis before and after they go into effect.
  • Improving the consistency and efficiency of FINRA examinations.
  • Improving the FINRA arbitration process, ensuring it is fair for all parties involved.
  • Increasing transparency of FINRA’s governance and operations.

Giving back and paying forward.

Our industry has always been a force for positive change in communities around the country. This year though, I think we can do even more. We can work together to promote financial literacy by bringing the good work of independent financial advisers to those who need help but are not able to afford it yet.

I believe we also have a responsibility to help hard-working Americans invest in their futures and reward those who have served their nation with honor. The FSI will be working with retired Marine Corps Gen. Peter Pace to place former soldiers returning home from combat in positions in our members firms. I hope that financial advisers and firms around the country will seek out similar opportunities to help our noble veterans.

Clearly, this year is no time for our industry to stand by and wait for the results of the midterm elections. By staying focused and engaged, and by working together, we can continue to drive positive results this year, regardless of the political calendar.

Dale E. Brown is president and chief executive of the Financial Services Institute Inc.


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