Regulations, Regulations, Regulations!

Why is it that people in government think the way to solve a problem committed by a small subset of people is to make new rules that apply to everybody?

A case in point: Regulation Best Interest and Form ADV 3 - CRS. (See June 5, 2019 Final Rules)
https://www.sec.gov/rules/final/finalarchive/finalarchive2019.shtml

This proposed rule by the SEC applies to all broker-dealers and investment advisers. The problem is that this rule favors broker-dealers over investment advisers. There are a couple of lawsuits filed against this proposed rule and we will see how this all pans out. However, herein lies the problem. Broker-dealer representatives can sell Variable Annuities that pay 6% (or more) commissions to their clients and still comply with RegBI. Well, you might say... "What is the big deal as long as it is disclosed to clients in writing?" More disclosures? We really need more disclosures? Let me get this straight. As long as your broker puts it in writing that he is charging you 6% commissions and you do not even have to sign Form CRS, then this makes it okay? Give me a break.

Here is another problem. Think about this from the best interest of the client for a minute. This broker sells you a 6% commission Variable Annuity with a 10 year surrender charge and has given you the proper Form CRS disclosure. What this broker did not tell you was that you can get a multitude of Variable Annuities without any commissions and no surrender charges. Guess what? He didn't put that in his RegBI disclosure either.

Do you see the problem here? How can you ever sell a client a Variable Annuity that pays 6% commission with a 10 year surrender charge knowing full well and trust me, the broker knows full well, that there are Variable Annuities without commissions and no surrender charges? How can this ever be in a client's best interest? It cannot. Pure and simple.

In my opinion, the issue is and always has been to protect broker-dealers over investment advisers like my firm. https://www.marianfs.com.

How do I plan to solve this issue at my firm? Give the Form CRS, plus a side-by-side comparison of the fees currently being paid by a client against the fees if they move to my firm. All you people who still do business with broker-dealers, really need to come see me, or reach out to me. Seriously. This one form will open your eyes to how your broker is not doing things in your best interests and quite frankly, never will. This form is copyrighted by the way, so don't get any ideas you brokers.

I Love the CFP Board, But...

I love the CFP Board, but for solo-entreprenuers, trying to come up with a disclosure form that meets the SEC's Regulation Best Interest and the CFP Board's new Code of Ethics and Standards of Conduct means that I will have to develop two disclosure forms. There is no way on God's green earth that the Regulation Best Interest disclosure that I painstakingly came up with is going to qualify as a disclosure that meets the CFP Board's new Code of Ethics and Standards of Conduct.

Lucky for me, I have been doing this since December 1, 1992 and I have a lot of experience. I feel sorry for those CFP's who do not have my level of expertise. There was a chart that I saw recently on Twitter that used the Securities and Exchange Commission's estimate of costs to prepare the Regulation Best Interest Disclosure and it was staggering. The cost was between $4,000 to $8,000 per year, if I recall correctly. Don't forget to add on top of that, the cost to design a CFP disclosure that meets the new Code of Ethics and Standards of Conduct. That's probably easily another $5,000 per year. Of course, there is already the cost of Form ADV 2A and 2B disclosures that already cost in the $5,000 per year range. So, if we tally all this up, if you are a CFP and a Registered Investment Adviser, then you are probably looking at spending $15,000 per year just on disclosure forms.

If you are a client of a CFP, let me ask you, did you read from cover to cover and ask pertinent questions of your CFP and their business model as a result of their Form ADV 2A and 2B disclosures? Or, did you just trust them? What happens if now, in addition to the Form ADV 2A and 2B disclosures, your CFP now piles on top of that this new disclosure related to the Code of Ethics and Standards of Conduct and also, the SEC's Regulation Best Interest disclosure? If you did not read the Form ADV 2A and 2B before, are you really going to read these additional pages of disclosures?

This is what drives me batty about regulations in the financial services industry. The powers that be always believe that more disclosure is better than less disclosure. In my opinion, more disclosure increases the likelihood of someone not reading your disclosures. Let's face the truth, who wants to read 50 pages of stuff and sign over and over again in multiple locations that you are aware of this and agree with that? It is just going to be more confusing and harder to get new clients!!! People will freeze up and not do anything. More regulation, in my opinion does not protect clients from unscrupulous financial advisors. If you do not believe me, read my prior post about California Alcohol Licensee "Investments." Those "advisors" did not disclose doodle squat. They just stole people's money.

It is the same thing with gun control and these crooked advisors. One crooked advisor rips people off, then ALL advisors have to have more regulation as a result. It is not going to stop crooked advisors from stealing people's money. They will continue to steal people's money no matter what the regulations, because like criminals who manage to obtain guns illegally despite laws against it, these kind of "advisors" do not care about laws and regulations. Why? Because they are criminals, too. It is the same line of thinking that making law abiding gun owners subject to more gun laws will do absolutely nothing to stop guns from getting into the hands of criminals. The criminals will just break into more houses and more cars to get the guns they need to commit their crimes. A new gun law is not going to stop them, just like more regulations for financial advisors is not going to stop crooked advisors from stealing people's money.

Again, I will do the grunt work and come up with the proper forms and disclosures, but brother do I feel sorry for people without my level of expertise.

Maybe, just maybe, if you are a client of a financial advisor, then you might be a little forgiving about the things we have to go through just for the privilege of giving you advice. Further, have a little compassion when your financial advisor asks you to sign their CFP disclosure and their other forms, now that you know what goes into it.