From the June 2004 issue of Investment Advisor • Subscribe!

What I Learned in Canada

Editor's Note

I learned at least two valuable lessons while attending the National Association of Personal Financial Advisors conference in Toronto. To wit:

1) Canadians have a good sense of humor. This was proven to me at a Toronto Blue Jays game when I saw a promotion advertised on SkyDome's Jumbotron. As the "Psycho" theme played in the background, management announced that the first 15,000 fans at a coming Mother's Day game would receive free Blue Jays shower curtains.

2) Many people don't like Eliot Spitzer; some NAPFA-ites do like Eliot Spitzer. At the opening session of the conference, Spitzer appeared via prerecorded video to accept a special award for his efforts in protecting the investor. On face value, this seemed appropriate. After all, if NAPFA stands for anything, it's for protecting the consumer from the nasties in the financial services world by charging fees, and only fees, to clients. Spitzer has racked up an impressive record of uncovering abuses among Wall Street wirehouses and in the mutual fund industry.

Yet the most common comment I heard from conference attendees was consternation over the Spitzer award, ranging from anger among those who thought the group had kowtowed to someone who cares more about his own political future than investors' futures, to angst among those who thought Spitzer's muckraking will result in even more draconian regulatory measures that will stifle innovation and place a profit-stealing albatross around the necks of honest advisors. The upshot, some warned, is that the mom-and-pop advisory business will go the way of the dinosaur. Such firms' size and small margin of profitability error will lead to a rash of closures and mergers and acquisitions by larger firms. In the end, we'll be back where the profession started: Large, multiline financial services colossi will roam the Earth, plundering as they go, with the poor(er) consumer having nowhere to turn.

Two stories address these issues this month. The cover story (page 54) looks at how the average RIA is coping with the increased burden of compliance. The prognosis for the small advisor, reports Washington Bureau Chief Melanie Waddell, is uncertain, though the burden will get heavier in the months and years ahead. Accompanying our annual broker/dealer directory is a look at the B/D business by Marlene Satter (page 80). Compliance is nothing new for broker/dealers, but a confluence of pesky business challenges and the new get-tough stance of regulators is leading to much hand-wringing among B/Ds.

Amid the whining, let's not forget why there's more regulation. People in the business were cheating others. People were lying. People were giving preferential treatment to, surprise, other companies that promised a financial quid pro quo for that special treatment. For those of us who have observed the business environment for some time, and for all of us who have lived more than a couple of decades, scandal and corruption are no longer shocking. They are failings common to all human beings in all times. Beneath the veneer of Western Judeo-Christian civilization, there's a barbarian who acts out of greed and fear and is always ready to provide the pop psychological or sociological justifications for those acts. Yes, I'm thinking of the revelations of abuse committed by U.S. citizen soldiers in Iraq. There are good reasons to have laws forbidding all sorts of antisocial behavior, and we constantly have to adjust those laws so everyone is forced to formally confront and reject the latest manifestations of selfishness and cruelty.

I was always taught that the wise man is one who realizes his lack of wisdom. You, oh wise advisor, should stay humble, acknowledge your failings, remember your higher calling--a person called your client--and move forward. Whatever their failings, thank God for Eliot Spitzer and Bill Donaldson and their state and federal colleagues. The annoyance of compliance is the price you'll pay for the privilege--not the right--of serving your clients.

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