More On Legal & Compliancefrom The Advisor's Professional Library
- Differences Between State and SEC Regulation of Investment Advisors States may impose licensing or registration requirements on IARs doing business in their jurisdiction, even if the IAR works for an SEC-registered firm. States may investigate and prosecute fraud by any IAR in their jurisdiction, even if the individual works for an SEC-registered firm.
- Regulatory Oversight of Investment Advisors Although the regulatory environment is in a state of flux, it is imperative that RIAs adhere to their compliance obligations. To ensure compliance, RIAs and IARs must fully understand what those obligations are.
I very much appreciate the comments to my Dec. 13 blog on AdvisorOne. “Mary Schapiro and the Strange Case of Business-Model Neutral”, as I do all the comments to all my blogs, and I have to admit that being compared to my hero Dennis Miller (no matter how much of a stretch) is the highlight of my career.
Veteran advisor and industry critic Errol Moody was kind enough to post an excerpt from a speech he gave back in 2006, which is just as relevant today as it was then. He included a quotation from then NASD CEO Mary Schapiro (now SEC chair), which raises another of those red herrings that the financial industry uses to deflect attention away from its anti-consumer practices. Schapiro said:
“I believe very strongly that the people best able to protect investors from mistakes, misunderstandings, deception or outright fraud are the investors themselves—if they are knowledgeable about investing and the markets. I cannot overstate the importance of this…”
With thinking like this, Ms. Schapiro and many, many others place the blame for the sorry state of personal finance in America squarely back on the investing public, as they lament a near-universal lack of “financial literacy.” Now, in the immortal words of Dennis Miller, I don’t want to get off on a rant here, but what are we talking about?
Sure, people would be better able to make sound financial decisions if they understood the basics of risk and reward, the time value of money, the hidden costs of fees and commissions, the power of compounding, etc. etc. No question. And many advisors I know spend considerable time educating their clients.
But the notion that this rudimentary knowledge—which, like customizing my website’s “home page,” clearly falls into the category of things most people really don’t want to know—is going to somehow protect financial consumers from the conflicting interests and agendas in financial services is patently absurd. They’d have a better chance of sorting out what science really tells us about global warming, I mean, climate change.
Which, of course, is why people need financial advisors in the first place. Unfortunately, not just
But most financial consumers will never figure all this out, no matter how “financially literate” they become. Nor should they be expected to. We don’t lament the American public’s current lack of medical “literacy,” legal “literacy” or accounting “literacy.” But who can deny that most of us would be a lot better off if we knew more about each of these vital areas? Case in point: I know an otherwise intelligent woman who gets her medical advice from the herbal section clerk at Whole Foods. But I digress.
The point is that we all rely on professionals for advice because we don’t have the time—or the inclination—to become experts on the growing number of areas of our lives that require such expertise. Set up a WiFi lately?
What we want is to be able to rely on those professionals to be competent in their area, to stay current, to be ethical and to put our interests ahead of their own or anyone else’s. And no amount of “literacy” is going to change that, whether in personal finances or anywhere else.
Here’s a crazy thought: maybe the SEC should focus on actually protecting the investing public, rather than telling us to “Watch out; It’s a jungle out there.” Of course, that’s just my opinion; I could be wrong.