RIABiz Follow-Up

As some readers may be aware, I’m currently one of three industry representatives running for a vacant seat to represent small broker-dealer firms on the FINRA Board of Governors. The suggestion was first made to me by Joel Blumenschein, the seat’s former occupant, who attended meetings I coordinated with senior FINRA staffers and was copied on several pieces of correspondence I had with those staffers as well as FINRA CEO Rick Ketchum.

My candidacy has recently been profiled in several publications, including Investment News and subsequently a guest column from NAPFA head Ron Rhoades on RIABiz. Based on his column, it appears that Mr. Rhoades and I share many of the same views on the role of regulators and the need to keep FINRA away from the world of investment advisors.

What I did not have the chance to share in my original Investment News article, which may have been interesting for readers, is my reason for maintaining this view.

As I have expressed to FINRA CEO Rick Ketchum on several occasions (FINRA is currently lobbying Congress to enact legislation forming a Self-Regulatory Organization for IAs – FINRA wants the job) for FINRA to gain oversight in the Investment Advisor space would be disastrous in the long run. FINRA, which was created in a 2007 merger between the NASD and the regulatory arm of the NYSE, has since undergone a serious shift in culture that has led this industry-funded regulator to think and act more like an agency of the federal government. In the process it seems to have forgotten who its clients are (read: who pays its bills), and the declining number for brokerage firms and registered reps over the past 5 years clearly show their frustrations resulting from increased scrutiny.

My concern is that if FINRA is granted oversight of Investment Advisors, there will be a shift away from that space – much the way there has been a shift away from the brokerage world (to IA-only) since the NASD became FINRA. If FINRA begins regulating IAs, it will likely drive a large number of those firms to deregister entirely in favor of opening hedge funds, private equity groups, holding companies, or other less-regulated entities. This move would mean even less oversight, leaving much of the investing public largely unprotected. The number of Bernie Madoffs that would emerge within 5 or 10 years would be truly astounding.

Ben Treece is a partner with Treece Investment Advisory Corp (www.TreeceInvestments.com) and licensed with FINRA (www.Finra.org) through Treece Financial Services Corp. The above information is the opinion of Ben Treece and should not be construed as investment advice or used without outside verification.
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