WASHINGTON Advisors and brokers are under mounting scrutiny from federal regulators, Financial Services Institute CEO Dale Brown cautioned members as they gathered this week in the nation's capital for the annual OneVoice conference and the FSI's 10th anniversary.
SEC
Brown, sitting for an on-stage interview, said he is particularly concerned about the tack the SEC appears to be taking under its new leadership, with the chairman and her top lieutenants signaling that they intend to usher in a period of rigorous enforcement.
"The current regulatory environment is still far too costly and complex. You have the SEC, which under new Chairman Mary Jo White is now led by a former federal prosecutor, and therefore no surprise she has made it very clear that one of her principal focuses is going to be enforcement," Brown says. "It concerns me, a law enforcement approach to regulation of the industry."
Brown referred to a speech White recently gave in which she likened her vision for SEC enforcement to the "broken-windows" approach former New York Mayor Rudy Giuliani implemented in the 1990s. The idea was that no crime was too small to garner the attention of the cop on the beat be it graffiti, turnstile jumpers on the subway or vandals throwing rocks through windows.
"One of our goals is to see that the SEC's enforcement program is and is perceived to be everywhere, pursuing all types of violations of our federal securities laws, big and small," White said in October.
That kind of saber-rattling doesn't sit well with Brown, and he worries that it will create undue concern for the independent advisors and brokers who belong to the FSI, potentially subjecting minor missteps in a practice to heavy-handed and costly enforcement actions.
"It's fine for the policemen on the beat to see the broken window in the abandoned building and work to make sure that more vandalism doesn't happen," Brown says. "But in this context, what our members and all industry professionals need rather than a law enforcement mindset on those minor things... is more of a consultative approach: 'Hey, there's some administrative foot faults here, let's see what you're doing to work to fix those.' But for the threat of those to be escalated to enforcement, I don't think that's healthy in the long run."
LAWMAKERS & REGULATORS
In addition to the troubling signals coming from the new SEC, Brown objects to what he sees as an overreaction to the financial meltdown on the part of lawmakers and regulators. New and pending rules and regulations, many emanating from the Dodd-Frank Act, threaten to penalize FSI members, lumping them in with the bad actors who were the real culprits in bringing the economy to the brink of collapse.
"Not a single independent financial advisor contributed to the financial crisis, and yet they're paying for that still today," Brown says.
It wasn't all fear and anxiety at the OneVoice conference. Brown and other FSI leaders heralded the organization's recent successes on the regulatory front, including opposition to proposals to end advisors' status as independent contractors, defending 12b-1 fees and helping secure seats for some 30 FSI members on FINRA committees.
Those wins come for an organization that's a relatively new entrant to the Washington lobbying scene. The FSI has its roots in Brown's native Georgia, and he acknowledges that the decision to transplant the organization to the nation's capital three years ago brought personal and professional challenges, but that it was ultimately a necessary step.
"This is where the action is," Brown says.
'D.C. PLAYER'
That move roughly coincided with the FSI's adoption of what Brown calls a strategy of "very intentional growth," ramping up both membership and staff.
Over time, Brown and his team decided that maintaining a headquarters in Georgia and flying up to Washington once or twice a month to meet with lawmakers and regulators wasn't enough. They felt the organization needed to become a more consistent presence at the policy table.
"Professionally it became very clear that it was just not effective to get the results we need," Brown says. "FSI needed to be known as a D.C. player, a D.C. organization."
But, as they say, all politics are local. So while the FSI fully intends to remain a voice for independent advisors and brokers in Washington, the group is working to bring greater influence to bear on state legislators and regulators, as well as U.S. congressmen in their home districts.
"Go back home and recommit to being deeply engaged in our mission," Brown implores his group's members. "At the end of the day, that's how we're going to bring about the change that we need to have happen."
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