The one-time “Sheriff of Wall Street,” is now at loggerheads with the legislative leaders in Albany. Dubya is now playing nice with Nancy Pelosi, of all people. Closer to home, Sarbanes Oxley is benefitting some advisors who are steering their clients into private equity investments, and the heavy hand of compliance is making it easier for some broker/dealers to weed out bad-apple reps while attracting the squeaky clean. Even the SEC’s much-maligned Merrill Lynch rule is making financial planning-oriented broker/dealers more amenable homes to brokers who are similarly oriented but find their hands tied at the wirehouses, while the FPA’s forthright legal fight against the rule has secured the moral high ground for the largest group of planners. (Tom Bradley’s stock has no doubt risen among the planning community for his consistent use of TD Ameritrade’s bully pulpit to inveigh against the Rule.)
One man’s meat is another’s poison, but lately it seems the poison spewed by legislators and regulators is playing right into the hands of the independent advisor community. Take private equity. Mark Dransfield, president of First Allied Securities, told me at the Financial Services Institute’s annual meeting in January that the added burden of complying with Sarbanes Oxley has led many companies to delay going public, so instead they look for private equity investors. Dransfield’s 500 or so producing reps benefit from SOX by gaining access to such deals in Silicon Valley through First Allied’s parent company Advanced Equities, especially in companies engaged in technology and alternative fuels. John Simmers, president of ING Advisors Network and the current FSI chairman, told Investment Advisor’s Kate McBride in an interview available as a podcast at www.investmentadvisor.com that the Merrill rule hasn’t hurt his firm in the least. Since his broker/dealer was already seen as a welcoming home for financial planning-oriented reps, the Rule has been a blessing in disguise.
Just as the bear market that followed the tech boom helped the clients of many advisors to understand the true worth of the advice they were getting from those advisors, tougher regulatory standards produce the unintended benefit of highlighting the already high standards of the prudent, fiduciary advisor.
Despite the silver lining benefits, the advisor community can’t just react to regulators and legislators. It must be proactive. The next big battle on regulation of the financial services industry will take place in Washington as the hordes of boomers without enough money to retire force their elected representatives to take some action to keep them from resorting to a cat food diet in their old age. Since older folks are famous for voting in big numbers, Congress, egged on perhaps by a populist President, will eventually either raise taxes on those who have planned for their retirements, or force some financial planning scheme for all Americans that emulates the process by which managed care companies changed the way doctors are compensated. Neither scenario would be good for advisors and their clients. So get active with your voice and your dollars with your advisor associations and foundations. You’ll be glad you did, as will your clients.
James J. Green