Wednesday, May 6, 2009

Fiduciary Standards Battle is Heating Up

I recently sent out a press release on how consumers are caught in the crossfire between FINRA and the Financial Planning Coalition which consists of the CFP Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors.

FINRA is trying to gain control of registered investment advisers from a supervisory role. In addition, they are trying to portray themselves as consumer friendly and in favor of a fiduciary standard. The problem is . . . a fiduciary standard does not allow you to sell from inventory. In addition, it would be a huge stretch to say that buying an illiquid limited partnership that pays a FINRA registered representative an 8% sales commission is in a client's best interest. Neither would having sales quotas to keep your office stipend or qualify for a trip to Cancun be in a client's best interest. This is clearly in the best interest of the FINRA registered representative. Just because the FINRA registered representative is wearing an Registered Investment Adviser hat, makes no difference since the later transactions related to sales quotas and trips clearly fall outside what it means to be a fiduciary.

If FINRA was really in favor of consumers, then they would tell their members that there will no longer be any FINRA broker/dealers and all product commissions will be eliminated. FINRA should also recommend to all its members that they all should register as registered investment advisers. Of course, if they do not do this, then it is obvious that FINRA is putting their own interests and the interests of its members ahead of consumers. They cannot spin it any other way. However with their political clout, I am sure they will find a way.

In the end, if registered investment advisers do not fight this and fight this hard, then consumers will lose and registered investment advisers will lose.