More On Legal & Compliancefrom The Advisor's Professional Library
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
FINRA’s proposed 25% increase in the fees that it collects from financial service firms may become a reality within the next few months, and it is important that all financial advisors stop and take note of the potential consequences.
Despite industry objections, FINRA has continued to argue that the fee hike is essential to its ability to effectively continue its regulatory mission in today’s financial environment. Unfortunately, because this additional expense will significantly increase the cost of providing financial advice, these fee hikes might spell the end of widespread access to financial services for many of your middle-market clients.
Mechanics and Rationale Behind the Increased Fees
The 25% increase would raise the fees that FINRA collects for registration and membership applications, including continuing membership applications. New membership application fees would increase from a minimum of about $3,500 to a minimum of $7,500 for the smallest financial advisory firms. FINRA would also increase the fees it charges to review advertising and sales literature developed by financial services firms to $125, up from $100, for the first 10 pages of materials.
According to FINRA, the increased fees are needed to offset the decline in fee volume caused by lower trading levels in recent years. Further, FINRA claims that raising fees is necessary to continue operating what has become a much more complicated regulatory organization, also arguing that it has not increased fees in several years. The organization has also sought to justify the increased costs based on the higher number of organizations that it oversees.
The Financial Services Institute (FSI) is one industry group that has filed a statement urging the SEC to put a stop to the increased fees (see news article on FSI’s opposition from AdvisorOne, and see FSI President and CEO Dale Brown’s AdvisorOne blog on the issue). The FSI submitted a comment letter to the SEC, arguing that raising FINRA fees will disproportionately impact smaller financial advisory firms and independent advisors who are operating on slim profit margins in the current fee structure.
Many smaller firms that currently provide more affordable financial advice to middle-class individuals and small businesses may have no choice but to raise the fees they charge for advisory services to make up for the higher FINRA costs.
According to the FSI, increasing fees in the past four years has caused many smaller advisory firms to fail, reducing the number of firms from 5,000 in 2008 to 4,400 today. Increasing fees now would not only cause this trend to continue, but higher new membership fees could deter small firms from opening in the first place.
Despite industry objections, it is very likely that some form of increased FINRA fees are coming in the near future. Advisors should pay attention to the final rules to determine how these fee hikes will affect their businesses and clients.
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