More On Legal & Compliancefrom The Advisor's Professional Library
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
- Best Practices for Working with Senior Investors Securities examiners deal harshly with RIAs that do not fulfill their fiduciary obligations toward senior investors, as the SEC and state securities regulators view older investors as particularly vulnerable and in need of protection.
The New Year finds the Financial Services Institute optimistic and on a roll.
That was the message at a morning meeting with various members of the media and FSI leadership at the advocacy organization’s 2013 OneVoice conference in San Diego on Tuesday.
Dale Brown, FSI’s president and CEO, began by noting the organization’s “three-legged stool” to increase revenue. The first was a concerted effort to double membership by having financial advisors join at a reduced cost. This resulted in a 70% renewal rate, on average, over the past four months, he claimed. The second was that “some broker-dealer firms saw a significant increase in their dues in 2012," which Brown said was the reason some firms were lost, but also the reason for a significant increase in revenue.
The third leg of the stool was the sponsor companies that have joined FSI, now totaling 98 companies in 2013.
“Bottom line—we are stronger than ever before,” he said. “Firms need our voice, which is their voice collectively.”
The organization noted at the meeting’s outset that in 2010, FSI’s budget was $3.5 million. In 2013, it is projected to be more than $7 million.
As for membership, FSI have over 100 firm members, with projected revenue of $1.7 million in 2013—and 87% increase from 2011.
Under the heading of financial advisor membership, the organization noted there are now 20 firm members who have fully subsidized FSI membership to all of their advisors. An additional 33 firms facilitate membership for their financial advisors by offering commission deduction for dues. All together, these 53 firms account for nearly all financial advisor members.
FSI also noted that in 2012, it had 88 sponsors generating $1.3 million in revenue. In 2013, it has 98 sponsors and over $1.8 million in revenue—and 80% increase over 2011 and a nearly 40% increase in revenue over 2012.
FSI 2013 Chairman Larry Roth, CEO of AIG Advisor Group, argued that the reason for the organization’s success has not only been the quality of the broker-dealer membership, but also because broker-dealers are more committed, are bringing more people, and are more involved.
“We’ve been able to offer friendly competitors and opportunity and forum for idea sharing,” he said. “And it’s the same with our sponsors.”
FSI’s efforts are “making life—I was going to say easier—but more tolerable,” he added. “Interest rates are low and margins are thin. But we have members, vendors and advisors all aligned around FSI’s agenda. We have the full support of all of our members.”
Vice Chairman Mike Mungenast, president and CEO of ProEquities, noted the importance of having a diverse membership as well.
“They come under the heading of IBD, but they are all different,” Mungenast said. “It’s important to understand how what we do impacts people at the smallest level of their broker dealer and advisor business. Profitability is a tough business at the moment, interest rates are low, but their all going through it—both large and small.”
“For advisors, it’s a complex world,” he said. “For example, the Department of Labor’s fiduciary rule; advisors want to do what’s right for their clients, but they also feel like they’re getting distracted. As a result, they become more engaged.”
“Now that we have 36,000 members, we are communicating much more frequently,” Roth added.
Turning specifically to the topic of advocacy, David Bellaire, executive vice president and general counsel, said “We’re in the midst of our five-year plan, and advocacy is a major part. We traditionally had a two member advocacy team. Now we have six people, and we plan to add two more. We also have a dedicated two-person legislative team.”
He said the organization was currently engaged with the SEC, FINRA, 20 state legislatures and a host of other government bodies. He identified FINRA and the SEC are the regulators with which their most effective.
“We would like to be bomb throwers, and it would be fun to jump up and down and scream and call people names,” Bellaire said. “But we have to be able to engage constructively with regulators and build relationships.”
Brown interjected that the organization’s greater resources means legislators and regulators will hear from FSI, and when they do, it will include research and information.
“Rick Ketchum has complemented our letters as very researched and very well thought out,” Brown related. “We’re not whiners. We understand their job is investor protection. We have a vested interest in that as well, but let’s not have unintended consequences.”
As for the new SEC chairman, Bellaire said, “We look forward to working with Mary Jo White. She has a different background, but that’s good. It’s a different perspective, and we look forward to working with her.”
He added that FSI does expect the DOL's fiduciary rule to be reproposed in a July timeframe. He claimed that the organization has built a good relation with Phyllis Borzi, the assistant secretary for the Employee Benefits Security Administration, and that it can “pick up the phone and call her.” But he noted they are “holding their cards close to the vest” and he expects the reproposed rule to be aggressive.
“The idea that commissions have an inherent conflict of interest is wrong,” he said.
Bellaire noted that the independent contractor status has been a “cloud over the heads of broker-dealers for some time.”
“We’ve felt we’ve been successful in getting carve-out language to protect the independent contractor status that’s different from delivery drivers and construction workers and others that are having classification problems.”
Lastly, Bellaire mentioned regulatory reform as a whole and said the organization is working hard to bring “sanity to our business.”
“Traditionally we have played defense, but we can now play offense to show some of the unintended consequences,” Brown concluded. “Frankly, it’s more fun but there is no guarantee of victory.”
Check out complete conference coverage at AdvisorOne’s FSI OneVoice 2013 enhanced landing page.