Punishing the Critics?

[tinathompson]

With 17 years of experience in the investment industry and having to contend with regulators I would agree. I had one SEC regulator examine the home office and then one of our branches. During the interim of the audits this auditor had explained to him 3 (three) times how annuities work. Definitely not a rocket scientist. However, my last experience with regulators was one that proved in the end to be beneficial for my as a CCO. In 2009 I had 3 FINRA auditors come to the B/D I was working for. Now mind you they stayed for over 6 weeks. The firm had business in the standard investments plus hedge funds, managed futures, private placements and who knows what else the CEO could find as way to make money. This CEO was the typical horrid nightmare for compliance. Asked for advice and did what he wanted anyway. Needless to say I did develop a repertoire with these auditors. I had many discussion with them about my concern in reference to my CEO and his business dealings and how I had done what I could to keep him in check. Basically I had to cover myself because I knew it was not going to be a good outcome and I sure did not want to go down with the ship. Inevitably due to the financial condition of the firm I was let go. I did spend 17 months unemployed but it was better than working at the firm. Things just got worse. Then one day in the mail came the subpoena to appear for a deposition. Worst experience EVER. I thought with me only being there a year I would not have to appear for the arbitration....WRONG!!! Got subpoened for that too. I will say that even the FINRA attorney was sympathetic. He asked me how I dealt with working for someone so difficult and watching the firm fall apart in the interim. I told him lots of alcohol which was how it worked for us all. He explained that this all situation would not affect my U-4 and that I was a witness for prosecution. I was relieved because no one had any idea what was happening. Fortunately my former CEO did settle with a bar for him and the firm from the industry. Grant it after what he put me through I would have gotten much more pleasure if he had to do time. In a nutshell most regulators can be incompetent, clueless and have a lack of apathy but every once in awhile one can get lucky.

[B Smith]

Welcome to government. Welcome to corporatism.

Thank you Bob for informing our ranks about the real dangers of ANY regulatory body, let alone one that is a SRO (yet, let's create a new one and we'll make that one better!)

And if you do taxes, you know the same is true of that group. And if you work at a credit union, you know the regulations on debit cards hurt you, help the big banks. And if you work anywhere, you likely have some rule meant to keep others from competing, harass you in your ability to make money.

The problem isn't that we have or need regulations, it's the stupid mentality of those in power. The only thing that they ever push for is more control, more power, more keeping out competitors by way of licensing / education / greasing the wheels of corporatist government.

This is an especially frustrating industry, because we're suppose to be the ones that recognize the above is happening, and be against it.

Instead, you hear our 'great leaders' as the most bleeding heart 'regulation takes more money.'

No, it doesn't.

You know who catches people when they cheat in the markets? The market. The market pumps down the price of any stock well before the SEC gets involved.

It's such a shame that there is no forgiveness any more; it's all these bodies do is expand. Let's not only publish this data on an advisor, let's publish more. Let's increase this fine. Let's increase the jail sentence.

Something about having the most regulated, most jailed, highest fined, system doesn't appear to be working. Maybe we should try capitalism - the thing that worked for all of us, and all of our clients. And shut down the SEC because it does nothing but slaughter hundreds of thousands of trees and increases our clients costs (and payments to the big brokerage firms) by their silly 'disclosure' requirements. We all know they don't mean anything. I think if we knew the true cost of all of the things these firms do to our clients portfolios and we were in this business for protecting our client's financial wellbeing there is no other answer than to stop our own participation in the legislative game and have on industry be on the side of sanity. The FPA / NAPFA / whoever is never going to win at the table with the banks.

Which is why we should be the industry to see this corporatism fight correctly. It's a shame we on the front lines of the game can't see the forest for the trees. Rant over. Thank you Bob for being one sane voice in a world of regurgitated insurance press releases being called news.

[Bradly T.]

Only two types of professionals need to worry about regulators.....the thieves.....and all the rest of us. The thieves worry less because they know exactly what they're doing and have an eye on the ticking clock and a hand on the door. The rest of us never see the hammer dropping. I simply wish the hammer dropped more on any activities that actually cause or add to client losses than the procedural minutae. I can't really tell if it's a competence issue or a priority/policy motivational issue - or some farcical combination of both. I find it curious that existing regs and the regulatory structure, pre Dodd/Frank, have "discovered" well imbedded and long running criminal enterprises NOW. But, as pointed out above, the USDA and FEMA, et al, perform best soon after public humiliation....although best is a very relative term, compared only to non-performing.


I am a little surprised by B Smith's otherwise spot-on comments including kudos to Mr. V in the same post as his criticism of the FPA/NAPFA noncoalition since he has been their mouthpiece the past two years of misguided lunacy. One who purports to be a champion of financial planning while diligently working to turn us over to the SEC and the securities industry and creating yet another SRO for the DC clowns to regulate "as an element of investing" has little, lately, to be commended for. I keep waiting for his break from the fool's parade and his contrition for attempting to sell our profession down the river.....to be mere slaves to the masta's. All this foofarah did not get this far without his able assistance and stumping for the noncoalition team. Perhaps it's time to again become a champion of planning and planners and quit schilling for the so-called "leadership", hell bent on turf, influence, and money.



Increased scrutiny of practitioners, and the increased cost of business, and even more dumb rules to come are to be placed at the feet of these "leaders" and their mouth pieces. It's been a damn ugly 3 years. And are we any closer to preventing the next swan event? I'm pretty sure the cause is not in my file cabinet....or paycheck.



Mr. V - sorry for all the elbows from me but no one opens themselves up more for criticism than critics do. You're a very critical guy....I know, it's your job. Let's hear you criticize the noncoalition....just once. You're aggressive position about CFPLite helped preserve a discipline and hope for a profession....what are you thinking now?



Question for tinathompson - what brought the regulators into your firm initially? Was there a trigger event?

[B Smith]

Sounds like I just didn't know about this one flaw of Mr. Veres'. But, hey, if he's publishing great reasons that support the other side of their work, on purpose or not, that means more to me than any support shown elsewhere. I'm only glad someone critically looks at such issues instead of just assuming more regulation and more money is inevitable.

I'm saddened by a particular individual who doesn't seem to understand that Congress these Dodd Frank mandates, and other laws, aren't just inevitability waiting to occur. It's like to this person (people), let's not even WAIT until the new / next Congress decides to fund it, the Supreme Court decides if it's constitutional... it's just inevitable that we need more money to regulate a fiduciary standard.

No, it isn't.

I personally haven't heard from ONE person how existing bodies can't add a checkbox to their regulator checklist and check it when they do their 2 visits per year.

It's like us, we get more regulations, and do we necessarily say, "we just need more money to prepare an ADVII."

No. We do it. We don't say 'there isn't the money.' I need the state to pay for me to hire someone to do this. I need to hire 10 more people to do this.

That doesn't matter, even if it's true. We do it within our ability to do it. Doctors in the 70s didn't need much of anyone to do their billing; now they need about a dozen people just to do billing. They made it work within their profession. If the profession of regulator is a legit one then they can do the same in the face of needing to ask a simple question or two. Hey, they might even get done and on to the next call a little more productively.


It is just plain ignorance to say that because a giant group of banks have a lot of money, we should make them rule us because we "have no money." I think it's worse than ignorance, but I can't think of a bad enough word for people that claim to value independence for their clients think it's ok to sell out their clients to the wealthiest so-called regulator. I think it's anti-fiduciary that they're even involved in such conversations, they are not putting their clients interests ahead of their own.

We may not 'have' money to do a lot of things but we have it already in the regulatory framework. It will be just fine without more employees.

Let's also not forget as financial advisors those that rail about the states having no money blindly ignore the reasons why the states have no money. Let's just keep going down that road. Next year we can have McDonalds and JP Morgan take over collection duties for the IRS.

[tonynovak]

In the early 1990s I published a series of aggressive tax planning articles for small business owners and then found myself facing IRS audits for each of the next six consecutive years and about every other year since. During that same six year period I faced two SEC audits, two years apart, despite the fact that my one person advisory firm did not have custodianship or discretionary authority over any assists. (I was primarily a tax adviser although filed as RIA). It was too much to attribute to coincidence or bad luck. In my mind, there's no doubt that regulators target those who make waves. Other than the articles published, I had no regulatory or consumer complaints, and nothing out of the ordinary in my practice. There was simply no way to justify or explain the massive effort that regulators spent on those eights cumulative audits other than as a warning to me in the form of this harassment. In the end, none of the audits resulted in any substantial adjustments but did cause a lot of stress that affected my family and relationships and a loss of much valuable work time.



Looking back, I conclude that this type of regulatory action is, in fact, a highly effective way to make an adviser back off and "toe the line".
Tony Novak

[BobVeres]

Hi all.

Wow! Tina, you have my (belated) sympathy. What an ugly mess. And Tony, you have my current sympathy.

The B. Smith comment, to me, offers the best and worst of the Libertarian argument: that we should dismantle the regulatory structures and let the market decide, because human beings have a tendency to grab, hold onto and abuse power. (I may be truncating the argument just a bit here...) Yes, people who are given power DO have that tendency; you win that point without any need for further discussion, and the current SEC Chairperson could be Exhibit A. But the other side of that argument is that human beings also have a tendency (at least some of them) to grab and abuse power in the marketplace, and some willingly engage in criminal behavior.

There's a serious question, in my mind, where you would draw that line. Do you do away with police, and let the market regulate bank robbers, arsonists and terrorists? No; that's absurd. Do you do away with the SEC and let the market regulate Ponzi schemers and people like Tina had to deal with? I find that far less absurd, but precisely because the SEC has been visibly ineffective at the important things, and VERY effective at the unimportant ones: consolidating its power, harassing the honest members of the community it regulates, and raising the costs of doing business.

I'd rather fix the SEC, if possible, than do away with it, although I will admit that on balance, from what I know, it is currently doing more harm than good to the profession and consumers. I fear a regulatory vacuum more (although, perhaps, not a LOT more) than I do the current SEC, and I dream of reforming the SEC if Congress and the press ever really understood the absurdities that they foist on us. Hence two of my previous columns, which DID attract the attention of members of the press.

Bradley, I'm growing a little tired of your constant accusations, especially when you misrepresent my positions. I'm always clear about the positions I take, and the only criteria I have for taking them is what I think will benefit the profession.

Yes, I HAVE supported NAPFA, the FPA and the CFP Board in its coalition. But the reason for my support is that it is, currently, the only visible opposition to the wirehouse/brokerage agenda in Congress. The Coalition supports a fiduciary standard, which I see as a clear, principles-based regulatory line in the sand that says, essentially, whatever you do must be for the best interests of the customer. The brokerage community supports a compliance standard which says that we create a million rules and interfere in the communication between advisors and clients, and assume that every bit of advice has a sales agenda.

I have NOT supported a new SRO. In my writings, I stand strongly on the side of the honest advisors in their efforts to distinguish themselves, in the marketplace and in the regulatory scheme, from salespeople and persons who cloak themselves in advisory clothing in order to push expensive products. The Coalition, for all the internal problems they have, has decided to stand for the same thing. And it, too, opposes an SRO--particularly FINRA--which is another thing I like about them.

The most controversial proposal to come out of the Coalition (to finish the discussion) is the idea that financial planning itself should be regulated, either by a government body (which they prefer) or by the states. I haven't supported that initiative in my writings, but I do, on my better days, think it would be nice to give consumers a clear distinction between who is and is not a financial planner, who does and does not follow basic principles and protocols that benefit the consumer. The question, in my mind, is whether I trust anybody to administer this regulation. Whenever I meet with the CFP Board, I ask difficult questions and remind then that we are all watching them closely... and restlessly. I think we have to do that with anybody who purports to govern the profession, and so far it seems to have been a decent check and balance.

It's not a complicated position to take, I admit, and people can fairly disagree with me. But I don't think this remotely resembles the position that Bradley has, over and over, assigned to me.

Bob Veres

[the observer]

Mr. Veres writes:

"In my writings, I stand strongly on the side of the honest advisors in their efforts to distinguish themselves, in the marketplace and in the regulatory scheme, from salespeople and persons who cloak themselves in advisory clothing in order to push expensive products."

Here's my issues with these statements...

1. There are many dishonest advisors who, in their efforts to distinguish themselves in the marketplace and in the regulatory scheme, register as investment advisers to create an aura of respectability so they can rob people blind and do so as Registered investment advisers with custody and discretionary authority. Your statement also suggests that salespeople cannot be honest, the same can be said for industry "commentators".

2. What the coalition and you Mr. Veres fail to grasp no matter how many times you are told is... a series 6 (mutual fund rep) and series 7 (stockbroker) are "salesmen" and non-fiduciaries by definition. Their very limited training doesn't give them the tools they need to do anything else. There are already a myriad of rules on the books, which FINRA fails to enforce against "persons who cloak themselves in advisory clothing in order to push expensive products" HOWEVER, the SEC and FINRA continue to allow the brokerage houses to obfuscate the title, qualifications and competence of their "registered representatives", that's an issue for Congress to take up as it considers whether these agencies should be scrapped.

Mr. Veres, the position you need to take up is either;

a. Enforce the myriad of rules already on the books to protect the public, OR,

b. Do away with the series 6 & 7 altogether and have done with.

Salesmen/women are not and will never be "fiduciaries". There's absolutely nothing wrong with the sales process, only the brokerage houses that seek to obfuscate the qualifications and competence of their salesmen. You cannot make a silk purse out of a sow's ear it is said... well brokerages houses do on a daily basis, which violates FINRA and SEC regs., but they seem to be doing so with impunity. Blame the regulators not the regulations. It is only a total lack of enforcement and facilitation on the part of the SEC and FINRA in the past through rules like the Merrill rule that have allowed stockbrokers and mutual fund salesmen to act like advises and get away with it. Shame on the regulators for not protecting the public.

By the way, option b will just make everything three times more expensive and completely cut off the poor and middle class from advice IMO, but if that's where it's going... fine.

Perhaps when Congress has finished screwing up our business they can finally attack the root evil of this country... their own corrupt Ponzi schemes, lies, fraud and dirty back room deals.

As for the coalition, they are a fraud being perpetrated on the public and Congress and should continue to be exposed as such. A bunch of self-serving hypocrites at best. Let's regulate the bad guys... I'm sick and tired of the good guys demanding more regulation while the real issues are not being addressed. It's bloody stupid.

I've brought this up before in other threads and Bradly makes the point again. The "Financial Planning" coalition is no longer lobbying for a "financial planning" profession... it's spending money seeking to change the way "investment" advice is offered in America. They are not the "Investment Adviser" Coalition. Millions of dollars are being spent, ostensibly on behalf of over 72,000 "financial planners" (many of whom have been counted twice to plump the numbers within the coalition's three organization) and clearly, many of the 72,000 object to being represented by this coalition in the first place.

And yet, Mr. Veres, you continue to support them?

My suggestion to you Mr. Veres is to go take a series 6 and 7 course of education, that's simple enough to do. Once you know what they know, then go read the FINRA manual and SEC regs. Do both and perhaps you'll gain a better understanding of the issues. You'll then perhaps grasp who's dropping the ball and why rules need to be enforced and that if enforced, there is no need for additional regulation.

Will you, of course not... It's much easier for you to read, absorb and blindly regurgitate the coalition press releases than it would be to actually do the work required to get the real story. While often scathing in your criticisms of CFP Board and NAPFA critics, I've never actually seen anything written by you that contains "original" thought based on a broad and in-depth personal knowledge of the regulatory structure and real issues when it comes to financial planning.

More than anything, however, it's time for you to at least acknowledge that the coalition members are obviously self serving bunch of hypocrites who are more concerned about restricting the lucrative "investment advisory - assets under management" business that they all profit from, than they are in defining and creating a profession for comprehensive financial planners that also benefits the public.

Hell come to think of it, the coalition haven't even justified the "need" for an additional profession, explained how the various disciplines could be cost effectively merged under one layer of regulation, or who would pay for the supervision and audit of such a "profession". Bu then, that's never been their goal even in this latest venture. They just want an "additional and overly burdensome" layer of regulation.

The coalition and you Mr. Veres are using smoke and mirrors to create a need where no real need actually exists.

I would challenge you, Mr. Keller and NAPFA anytime anywhere to a public debate on the real issues and you'd all lose. But that won't happen because you'll all never leave your ivory towers to engage in a meaningful debate with anyone who could present a danger to your pet project. You'll just continue to hog the pages of the media with scary stories of monsters in the closet in the fervent hope that Congress will react.

Pathetic, self serving and just plain wrong.

[Bradly T.]

Please don't claim innocense on the SRO issue.....that is the RESULT of the noncoalition's efforts (and yours), as unintended as it might be. Unintended consequences are what PLANNING is all about. Strategies and tactics adopted for one end OFTEN result in unintended outcomes, even catastrophic ones......for poor planners anyway. Please explain what possible business it is of the noncoalition's anyway to lobby (not simply offer a friendly opinion but LOBBY - and with who's dollars?) the SEC about ANYTHING??!! Either planning has been reduced to an element of securities advice or securities remains a mere element (and NOT the most important element) of planning. We know where the noncoalition is on this issue now...all too well. But can't tell where you are.


To say nothing against such atrocities in your position IS a passive endorsement AT LEAST of the duplicity and agenda of the noncoalition. Last I checked, this is a conVEREsation - not "the finish of the discussion". So, should planners be regulated by ANY federal agency? By the SEC? Should the noncoalition be lobbying Congress "on behalf" of advisors or reg reps or not? So you believe these efforts will promote and help transform the discipline of planning into the profession of planners?



So funds are "expensive" but perpetual management fees AREN'T??!! So EVERY financial product that pays a commission is both inferior and more expensive to managed accounts? Really!? So if one can only get a product by commission, they don't need it and shouldn't have it? That's your PROFESSIONAL opinion.....stated repeatedly. You, sir, are no champion of planning or planners and you are NOT any champion for working class America (OR the wealthy for that matter who have long used CV life, Reg D, nontraded REITS, private equity, and annuities to create, protect, and transfer wealth sir for a damn long time.....quite effectively thank you. No sir, you have become a one trick pony.....champion for one outfit - the RIAs - and the nemisis of another - the wirehouses......and you show little regard for the collatoral damages done in your single minded quest.



You want to be a critic? Don't dodge or demur when criticised then. Please do continue the conVEREsation.

[Tad Borek]

Do you do away with the SEC and let the market regulate Ponzi schemers and people like Tina had to deal with? I find that far less absurd, but precisely because the SEC has been visibly ineffective at the important things, and VERY effective at the unimportant ones: consolidating its power, harassing the honest members of the community it regulates, and raising the costs of doing business.

Bob, I know you focus on financial planners and this (small) industry but I think if you look at the broader mandate of the SEC, but this is a pretty indefensible claim. I'd own a lot of real estate if the SEC didn't exist because there would be far too much uncertainty in things anyone who invests takes for granted.

Consider the overwhelming success of the mutual fund, as a vehicle for investment. This is how most retail investors can (and should) participate in financial markets. Mutual funds make sense only if they are heavily regulated; that regulation avoids the need for everyone to investigate on their own - both initially, and as long as you hold it - whether the fund exists, whether it owns the investments it says it does, whether it's tracking shareholders' stakes accurately, whether NAV is reported correctly, etc. How could you even do that? You couldn't.

I can't think of a single mutual fund that has blown up...perhaps the closest was a handful of money-market funds breaking the buck. That's quite a success story.

Similarly the '33 act exists because of the large number of fraudulent securities in existence prior to its enactment. Consider the incredible value of the SEC filing system with all its forms - warts and all it's an incredible amount of standardized information to have available. I use it all the time and there is no realistic substitute for that.

Who really wants to shut that all down? And for those putting their hand up - do you actually have any money invested? This is the nightmare scenario for individual investors because it would leave investing entirely to those with the resources to investigate every security on their own. And that is the system that the Madoff scandal proves ineffective (those were accredited investors after all). Think about it...how many scandals came in unregulated pockets of financial markets? Most of them, right? That's what the libertarian world looks like.

-Tad

[Bradly T.]

As a constitutional conservative and social libertarian (and any critical thinker must be both or neither), I find the apparent dichotomy of Tad's and BSmith's position very interesting!!! The conservative in me understands that government has an important role in protecting free markets for free enterprise....protection from capitalists who prefer and create monopolies of supply and/or distribution as soon as they're big enough to fight dirty and provide payola. Government's legitimate role is protecting open pricing and market competition to provide both owners of business and customers of business the freedom to compete (owners) and to choose (customers). The libertarian in me doesn't want ANY government or its agencies to reduce choice or restrict access or "protect" me or "select" for me by their efforts to "regulate". Either one believes in the power of free markets or one does not. Simple. One either believes the government is our big brother and should decide what's best for us or one believes their role is simply to catch thieves, liars, and frauds TO PROTECT BOTH businesses and consumers from criminal activity and preserve and protect FREE markets and choices.


The libertarian in me doesn't mind at all if others do things differently - no matter how ill advised or crazy - so long as what they choose and do does NOT interfere with my right to choose and do whatever I choose to do....or not do. So both the conservative AND the libertarian in me are VERY displeased by the noncoalition's big brother attempt to determine for others the "best" way for the securities industry to manage their affairs, especially once one considers how they manage their own. I must agree with Tad that, to the degree that prior and current regulators have provided access to information and standardized that information in ways that deliver access and choice for reps and clients, we are far better off today than 70 years ago. The idea is to prevent or reveal fraud and theft - not reduce access or choice or competition.



But how can one dismiss or even disagree with B Smith? If the SEC had twice the budget the past 10 years, would they have left the online porn show and March madness pools and discovered Madoff or Starr and the other criminals they seem to have found just lately on their "half" budget? Doubt it. Will they be more dilligent or effective at protecting free choice to free access to free markets? Hmmmm....nope. So for the no show job they've done under the previous administration, this administration wants to double their budget to punish them or reward them for the stellar performance? The best reason to tighten the SEC's budget and leash is they have recently demonstrated they CAN be far more effective than they have been - it's simply a matter of priorities and focus - not dollars. The best defense the SEC has is the fact that their record is on par with every other federal agency. How's the education dept. doing with that? How about the USDA? Aviation? Fraud takes only about 30% of Medicare's budget right now - those guys are on the ball. Let's see, there's FEMA and the FDA. Any agency today found to be efficient and effective at their mission is flying real low under the radar. But I'd welcome examples.



I do not mean to diminish the importance of agency missions....but a mission is NOT a result. And many of us believe the government (and I mean ANY government) has an inherent inability to efficiently and effectively do very much very well. It hardly matters if they're republicans, democrats, communists, socialists, or libertarians (that's a funny one), governments just ain't great "on-the-ground".....especially when one adds in employment recruiting, graft, bribery, campaign "contributions" and the power of money on regulators and those who vote on their budgets. So the SEC is specifically under the glass here and now....but their shortfalls are hardly unique to them. Someone once said America has the worst government....until compared to all the others.



The noncoalition's recent attempts to surrender, with no shot fired, to the feds and the SEC in particular has been a 3 act farce, a 3 Stooge's fire drill, in how to do the wrong thing for the wrong reason in the wrong way all the while bleating about protecting others but really just feathering their own nest....and doing so while abandoning, even betraying their mission altogether. It's been a shameful display.....and an expensive one.....and has only served to push back even further any hope of an actual planning profession. So to Mr. V and his noncoalition cohorts.....any and every attempt of yours to reduce competition, limit choice, and restrict access to markets and securities is a very extreme and elitist and unAmerican position to take. Damn capitalists.....the scourge of free markets and free enterprise. I'm loving this conVEREsation!! It's a real brain twister.

[B Smith]

http://www.youtube.com/watch?v=wHH96zGU ... ture=feedu

Interesting comment at 56:00 on why it is impossible for US firms to produce blanks for the US Mint. They use their power to regulate who is in business as a weapon against anyone.

The same never happens in with our regulators though. Just the other guys.

Bob, the SEC didn't catch a single Ponzi scheme ahead of time. And they never will because most don't operate within the regulatory structure. They are just taking from one and giving to another... something you could say for a time many regulated REIT's did in their dividends. Did the SEC say 'boo' to REIT funds that paid out more in dividends than they earned? And we think they have the ability to evesdrop on every conversation an investor has with a unsavory accountant?

Let's also recognize that many, if not every, individual suckered by Ponzi schemes knew they were seeking a magic bullet. Unforunately, our regulatory system promotes investors looking for winning black boxes, bragging to their neighbors about their can't miss investment gimmick, and so on. VULs, FDIC insured gimmick CDs, and other contraptions are backed by government guarantees, and the thinking among us realize they are just grabs for investor dollars, their own Ponzi schemes in many ways because they have socialized risk management. Guess what happens when people believe in fairy tale products? They look for the best story. If individuals overlook the risks, and many do so knowingly, they will get burned. And our regulators should promote that over allowing companies to not fail in their gimmick product offerings.

Tad, you give credit where credit isn't due. In fact there are failed mutual funds, both in terms of performance and failing to treat their investors as shareholders and owners, and I would say this is precisely because the SRO rules favor the large. They just pay a fine as a cost of doing business and move along. Many should be in jail for giving preferential treatment to others. We look the other way. And also look the other way at the incredible charges to investors due to the regulation - you failed to address the point is the benefit worth the cost.

[B Smith]

Tad, question. What do you think encourages mutual funds to act in their clients interest more?

A) The directors facing jail time when they cheat investors, or are forced to repay all bonuses with interest directly to past shareholders (and legal costs added on top). Cost = nothing to regulate.

B) The promotion by advisors and regulations of companies with sterling reputation iworking for shareholders interests. Problem = very few big companies today care to market on this as they are better off paying fines and moving on, and so companies promote performance and just change their / fund's names when things go bad, which is happening more and more. Cost to regulate / promote = less than today

C) The SEC system of heavy fines which as a percentage of business mean the world to a start-up who may keep big firms honest, yet mean nothing to the big firms. Big firms leverage the rules to not work in their investors interests, create products that need to be bailed out yet retain past profits and market share, and investors only recourse is pennies on the dollar reimbursement after attornies have to sue. Problem = you can state investors are protected, but they are not; and the firms offering the top benefits become smaller and smaller, increasing future investor risk. Cost to regulate = enough to eliminate most competition that would otherwise keep the big firms honest.

You can guess I don't agree with you that C is the best answer. Not only because it doesn't work, but it also kills the ability for firms to compete, which eliminates the effectiveness of the first two answers above which do work and cost nothing.

[Tad Borek]

Tad, question. What do you think encourages mutual funds to act in their clients interest more?

I'm not even clear what you're arguing...that the SEC shouldn't regulate mutual funds?

-Tad

[Md9100]

Its 4:44pm on friday and just got finished reading all of the comments (pro and con about Mr.Bob; the SEC;FINRA;GOVT;B/D'S AND OF COURSE OUR FORMER FRIENDS OF THE FPA AND THE BOARD OF STANDARDS.
When we all started in this professions in the early 80"s I am referring to the new found profession of CFP® because alot of us have been around for a great deal longer than that like myself (January of 1968 after 3 tours in Veit Nam)

In those days there was no profession yet. The simlance of a porfession was emerging and it was called a CLU in life insurance field. It was special and to this day special.

The True financial planner for the masses had come decades before that, "They were know as Debit Insurance Agents", which the majority worked for companies like Metropolitan Life; Prudential Life Insurance Company of America: Life Of Gorgia; Western and Southern which was my Mom and Dads company.

When the agent would come over my Dad would stop everything to sit and discuss the issues of the day financial with this man of wisdom. He would even bring out his special put up wine just for that visit. He trusted that man with the family wealth which wasn't much but it was all we had. That inspired me early on to be like this man and when I joined the Navy I got my first life insurance policy a 20 year endowment because at that time I wanted to save money for me to use when I got out. The Agent at the time assured me this was the right thing to do. Well, it worked out that it was because by the time I got out I needed every penny in that policy to get my first place to live with my new bride. The agent came out to the house who was a stranger to me and thought he was going to convert my g.i. insurance I was a sale.....

I needed money not a new policy, he took care of his responsibility to me and then decided I would be a good recruit for the business. I didn't even own a coat and tie or a pair of dress shoes at the time. My Dad lent me the money with a promise to pay him back. Well I passed the tests with flying colors and was ready to sign up. There was a fly in the plans however, I only had a GED diploma and you needed at least a real high school diploma. Well, I made my first big sale that day and convinced my boss and the Metropolitan life via the phone to Manhattan that I had the ability. That was a while ago. Since then I have been in school and that is what our profession is, "constant learning, and relearning what we do. New laws; new ideas; and so on. And of course there is the clientele who we have lived with all these years. Believe me if you are not forthcoming in what you do for them they will weed you out.

It is true that the Government agency are a giant pain and that unfair as well as well deserved disputes find there way in front of them, the point is it comes with the territory. Its like joining the military when there is no war on, if you forgot your in the military the possibility of war is always there and you may get shot so you must understand that when you join up and be prepared by being trained well and have a good deal of luck for there is a lot to say about that.

Triaining and prepareness it the most paramount thing I can say about our profession is what ultimately protects you for the ultimate demise by inuendo I know I have been through it twice in my over 40 years and recently was put into the spot lite again and just sent off this week a three volume 3 inch thick per volume answer to the FINRA folks with my prayers...

I am now going on 65 years old this is all I have ever done and wanted to do I love the business and my clientele and their famliies are a part of my soul.

The first time I had a run in with the govt folks was a complaint over commissions by a dicruntled agent who left the company and went to another and wanted to lapse a policy and sell the new company. Oh by the way by this time the person who had bought the policies son had entered the business and was going to be the new agent. The company settled I refused and went to the commissioners office where I was found clear of any wrong doing and the other folks where fined and lost their liciences for the frivilous filling.

The second time came from a discruntled 2nd level beneficiary ( that is the child of a parent who died yet the other parent is still alive but wants money from the surviving parent who doesn't have a clue). The child in question was two children with drug and achoholic problems the mother was a rehabilitating alcoholic and everyone had had a major sense of entitilement.

Again I won the arbitration in fact the family went through three law firms and settled in the eleventh hour when the lawyers did a remarkable thing, "they actually read the files", and found there was no case.

That one cost me $500,000 to overcome in legal fees and loss of revenue as you must disclose to new customers when considering working with you that you are going through legal matters which gives folks the willies........

DId I mentioned that all of these things could have been settled in a room in one morning session if the files were read and discussed instead of being protracted by the lawyers "with an eye primarily at extending the fee income stream for as long as they can before resolving the case", this I know as I have seen it to many times. The second part of the equation is that the B/D's desire to settle the case instead of giving the financial professional as we like to think of ourselves anything to say in the matter. You are considered an employee and or better yet a foot soldier who is expected to fall on his sord for the good of the order being the B/D..... Sham on the system it does not protect the financial professional or the investors ultimately the winners are the insurance companies and the lawyers who work the system. Above all of this is the cloak of govenrment officials who confound the systyem even further as discribe is all said before me.

So, there seems to be no answer except to keep talking to each other and pray for sanity sometimes somewhere to raise it head and bless you when comes your turn, like the good king stanishloth theory is it. What ever side of the bed he wakes up on that morning bless yourself as to praying for the sunnyside as our lives are and for ever will be in there hands with no true answer on the horizon but the dialogue we have here. Let us all pray ladies and gentlemen for clear heads and understanding of the issues of our time.

The Sicilian

[B Smith]

Tad, question. What do you think encourages mutual funds to act in their clients interest more?

I'm not even clear what you're arguing...that the SEC shouldn't regulate mutual funds?

-Tad

My points were fairly clear... 'you give credit where none is due.' And 'you ignore the costs' of regulation, not backing why investors need to pay more for a system that doesn't provide them anything.

Your point that the SEC is the reason mutual funds have not 'failed' (according to your post), is not accurate. Neither is the comment that many (mostly large firms) haven't failed investors. All of the rest I posted explains why mutual funds actually haven't failed. I get that lawyers think laws are the reason we all don't turn into cannibals, but the facts are we behave like a fairly civil society in spite of laws that don't work in our favor, not because of them.

[B Smith]

I'm sorry Sicilian, I have to admit I didn't read your post, but feel I got the gist...

The answer is our legal system is set up to benefit lawyers... the true answer has been adapted by European countries that aren't run by lawyers who worship laws over what the market does for free.

It's called 'loser pays.' You don't get sued in bogus claims when the loser has to pay the winner's attorney costs.

We don't have that because the lawyers want to get paid no matter what, and more often want you to face that decision about paying $500k versus settling for $100k.

[the observer]

B Smith wrote:

"the true answer has been adapted by European countries that aren't run by lawyers who worship laws over what the market does for free. It's called 'loser pays.' You don't get sued in bogus claims when the loser has to pay the winner's attorney costs"

What a crock!

Mr. Smith, I spent the first 38 years of my life in this system of loser pays having lived in Germany, Austria, Italy, Switzerland and Sweden and my experience was and is that power corrupts and absolute power corrupts absolutely. Twice during my career I was screwed for my "salary" and the owners said go ahead and sue, I have lawyers on staff that will bury you in paperwork and you'll end up paying them. The only thing that saved me and got me my hard earned money was DAS Rechtschutzversicherung, a very expensive and comprehensive legal cost insurance policy that allowed me to hire the best lawyers and sue without worrying about the cost. I won both cases. I also had a traffic officer in Bavaria perjure himself in court to get a guilty conviction once. He thought I wouldn't fight because all court cost in traffic cases must also be paid by the guilty party. I fought that ticket to the Bavarian Supreme Court after I subpenoaed his partner (who refused to testify), and brought in two witnesses who were present at the time. I won that case too and the police officer was transferred to somewhere in a small village for his lies.

The corruption within European countries thanks to their legal system is rampant and the poor and middle class are often abused by the rich who can often get rid of someone with a legitimate claim with just a threat. Austrian and German newspapers I read daily are full of cases regarding the corruption there thanks in part to the legal system that benefits only the rich.

So how many years did you live in Europe where they have such laws and how did you profit? Or, did you just read about this wonderful system in a book and were impressed? Or, do you perhaps sell legal insurance that every American would need but wouldn't be able to afford? (and I'm not talking about that crappy pre-paid $16 a month nonsense they peddle here!)

With the differences in common law and civil law plus this system AND most of America owning guns, this country would turn into the wild west with the poor and middle class going postal on the fat cats who would sit in their ivory towers laughing at the unwashed masses below. The American system of Justice may be flawed and may be expensive, but it's a damn site better than anything Europe has.

My advice to anyone wanting to consider this system is... be careful what you wish for!

[Bradly T.]

Yes, please note my post above on unintended consequences.....the noncoalition's push to "harmonize" all models into a singular, homogenous one has resulted in a dimminishment of the historical standard and pushed RIAs into the waiting arms of their nemisis - FINRA. This result is the extreme polar opposite of their intention. Pushing boulders off a cliff to see what happens is a dangerous amusement.....resulting in cascading effects that cannot be reversed once begun. I'm still waiting for any evidence, even a reasonable arguement, that distribution models had an iota of cause and effect on the crisis past or the one's to come. All this energy for distribution changes is off-target and simply mis-direction to refocus attention away from the real issues and systemic risks that actually did cause and will cause again market collapse and economic weakness both here and abroad.


Are improvements needed? Sure. But any fool with a brain and a memory must certainly perceive the fact of evolutionary progress in distribution over the past decades. Consider the percentage of Americans with ANY investments with ANY market access/participation compared to 40 years ago. Consider the number of products and services middle America can employ today compared to 20 years ago - or 10. Consider the multiple entry points and business models for new reps and advisors to employ on behalf of their communities compared to my options 25 years ago. There's been plenty of change and plenty more to come.....all due to creativity, competition, choice, and access - not legislation and regulation. Our industy's experience with regulation and regulators is not unique or particularly alarming. Confounding, and misprioritized and expensive.....yes. What's new? As B. Smith says...welcome to governance and corportism. Deal with it!

[Tad Borek]

Tad, question. What do you think encourages mutual funds to act in their clients interest more?

I'm not even clear what you're arguing...that the SEC shouldn't regulate mutual funds?

-Tad

My points were fairly clear... 'you give credit where none is due.' And 'you ignore the costs' of regulation, not backing why investors need to pay more for a system that doesn't provide them anything.

Well hey it's a free country, you're free to believe that. Speaking first as an investor, I get tremendous benefit from SEC regulation of both mutual funds and publicly-traded securities. I understand they won't catch everything, so just price that into the system. A libertarian system of no-regulation - which substitutes enormous litigation costs (or more fraud costs) for the costs of regulation, isn't at all appealing in the realm of investing. As I said, I'd invest in real estate instead, because I don't know how I could evaluate investments at reasonable cost...I certainly couldn't fund the litigation required.

-Tad

[Bradly T.]

All this dancing around the May Pole is making my head spin. Factually, the observer, Tad, and B Smith have made accurate points with apparent, but not diametric, opposition. Our system IS made for (and now by) lawyers whose primary skill seems to be how to get around rules and regulations on technicalities (euphamisticly called loopholes) as opposed to the revelation of fact and truth or advocates for justice. We are horribly litigeous. But Europeans? The home of bribery, graft, intimidation, interminable process (oh yes, even worse than here), and where the righteous David's have no chance against the well financed Goliaths.


Tad and B seem to disagree on WHY funds behave themselves and have a reasonably good track record of fiduciary services to investors. There have been plenty of funds "blow-up", or more accurately deflate but few open end fund managers have ever been indicted or jailed, especially compared to fraudulent RegD, private equity, hedge fund, and discretionary, custodial RIAs falsifying statements or actually stealing cash. I'd have to agree with both - the regulatory scrutiny and information/reporting regimens PLUS investor/advisor experience in an industry full of competitors have COMBINED to make retail funds appropriate and effective, in general, for middle class America to access multiple securities markets TO THEIR BENEFIT!! I've met plenty of folks who paid 10-20% loads 50 years ago for high-fee management who made a great deal of money and created wealth they could not have otherwise accomplished. Did they feel ripped off or over-charged? NO! But they did enjoy lower and lower loads AND fees over the decades as COMPETITION drove down minimums, loads, and fees - ALL. Regulation did not deliver this - competition DID!



B Smith's point, I believe, is that more money for more regulation will not improve either enforcement priorities or the results of their politicized enforcements and that less money, better spent and prioritized could deliver a similar or even superior result. More regs + more money does not equal better results. More competition will. More access + more choices = better outcomes and lower costs for everybody everytime. And I must agree that the locks on my doors only deter the honest and a few neighborhood teenage hooligans - they sure don't stop professional thieves. There can be little doubt that much, if not most, regulatory focus is on minor infractions of process designed more to annoy and damage well intended practitioners and honest asset managers - let us call it "busy-work" - rather than do the harder investigative work tracking down fraud and criminals with no regard for integrity or client outcomes.



And Tad, although I have strong libertarian views, most of us so inclined are far from mob rule anarchists or enemies of the state. We're simply suspicous of Big Brother first and horribly disappointed in his priorities, budgets, and results. Our constitution IS THE libertarian manifesto of the ages - protecting minorities from the tyrannies of both concentrated power AND majorities (now there's mob rule for you). The liberty to choose combined with free markets and open pricing are the very foundations of our system of governance. We call the big brother types socialists. They beleive government can fix anything given enough money and power. As usual, I'm sure reality lives somewhere in between.



Bottom line is lack of money and regs didn't cause any or many of our problems and more of both won't fix or improve outcomes any either. Priorities, priorities, priorities.



Hats off to the thoughtful post by Md9100 who made 3 distinctly excellent points - he reminds me of the only financial option for decades for working class folks and how far we've come (I've spoken with many older folks who also used the old dime or dollar a week policy purchased from a friend and neighbor and were happy to have the account) - he reminds me of how many truly caring and professional agents I've known and been mentored by who earned a living (not made a killing) with integrity and expertise who cared a great deal about the families they served - and he reminds us all of how little intentions and integrity matter to regulators - about as little as lying, cheating, and stealing matters to them.



Too little money? Too few regs and regulators? Don't think so. Answer of Mr. V and the noncoalition - reduce choice, access, and competition by imposition of a singular model too restrictive and expensive for the unwashed masses who finally, for the first time in world history, have access to effective tools for wealth creation and protection. A pox on their house!!

[Bradly T.]

Where's Bob? The "fearless" leader of this conVEREsation?