From the July 2006 issue of Boomer Market Advisor • Subscribe!

July 1, 2006

Father and son join NASD board

Proving that the apple doesn't fall far from the tree, Ron Kovack, founder and chairman of Miami-based broker/
dealer Kovack Securities, and his son Brian, the firm's president, were both elected to positions at the NASD in June.

Ron has more than 40 years of experience in the financial services industry and had been a certified financial planner since 1978. Brian has a master's degree in accounting, a law degree and his Certified Regulatory and Compliance Professional designation from the Wharton School of Business. More importantly, he's a former
University of Florida linebacker. They founded the firm in 1997.

The elder Kovack spoke with Boomer Market Advisor about the regulatory environment, his first order of NASD business and the prospect of governing with his son.

Boomer Market Advisor: What made you decide to go for a position on the NASD board?

Ron Kovack: I started to see some pushback from reps against the current regulatory environment. They said, 'wait a minute; this is a self-regulatory organization -- one member, one vote. Some of this is not in the best interest of the client.' The problem is that there is the SEC, the NASD, state regulators and state insurance regulators; four horses eating out of the same trough. It's gotten very political. There are a lot of [Elliot] Spitzer wannabes out there. Mary Shapiro, the NASD's incoming chairman and CEO, says if the pendulum is swinging between no regulation and over-regulation, it's in error on both sides, and needs to be recalibrated. That won't happen in a vacuum. So my first order of business is to try and bring some sanity back to the regulatory process for advisors.

BMA: Will you and your son, Brian, serve on the same board?

RK: No. I've been elected to the NASD District Committee, which includes Georgia, Florida, North and South Carolina, Puerto Rico and the Virgin Islands. Brian has been elected to the NASD National Board of Governors in Washington. But it's the first time a father and son have held positions on the NASD board.

BMA: Any regulatory issues on which you disagree?

RK: Our attitude is that he's the future and I'm the fader. I generally defer to him because he's such a talented guy. But we agree on most hot button issues. His official role is of a confidential nature, so on those issues he doesn't share it with me and I don't ask. But we both strongly agree with the goals of the NASD, which are market integrity and investor protection.

BMA: What's going to happen with equity-indexed annuities? Will they be regulated as securities?

RK: For an answer to that, we have to look to the Howey Test, which set the definition for what is considered a security. The name comes from a guy in Florida named Howey who sold rows of oranges. The crop froze and he got sued. He claimed the oranges weren't a security and therefore not an investment contract. The courts disagreed, and said that in order for something to be classified as a security, it must have four basic elements:
it must be an investment of cash; in a common enterprise; with the expectation of making a profit; through the efforts of others. I would say EIAs live up to that definition. But why haven't they been declared a security before now? Let's just say the insurance industry has a very powerful lobby.

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