Close Close

Industry Spotlight > Broker Dealers

The free-wheelin' days of the industry are over

Your article was successfully shared with the contacts you provided.

In 1964 Bob Dylan declared that “The Times They Are a-Changin’” which became the emblematic anthem of the tumultuous years that followed. You could call that either a lucky guess on his part or a visionary (almost prophetic) statement of what he saw coming.

Now, I am no Bob Dylan and our world is much different today than it was in the 1960s. As an amateur historian, however, I can’t help but draw some parallels to the Dylan message of 1964 and the same message today as it relates to the financial services industry. I absolutely do believe that “Our Industry is a-Changin’” in a rapid, almost frantic fashion and, as advisors, we need to get our arms around these changes before we fall victim to the apathy and complacency that will destroy our practice.

To quote Shakespeare (“Romeo and Juliet”): “What’s in a name? That which we call a rose by any other name would smell as sweet.”

You can fill in the rest of the quote as you wish, but the rose I am referring to is that regulator formerly known as the NASD. Does it smell as sweet? I’m not so sure. In late July, the NASD and the member regulation, enforcement and arbitration functions of the New York Stock Exchange (NYSE) merged to form the regulator now known as FINRA. The reason for the merger was to reduce the level of duplicate rules and streamline the regulatory functions, thus protecting investors and increasing market integrity.

What the merger does to reduce regulatory redundancies may be helpful, but my concern is that now that FINRA has absorbed one arm of regulation, it may begin to seek out new opportunities for increased efficiencies, including taking on some insurance regulation, perhaps some investment advisory regulation and more.

Even the name they chose to adopt seems to imply much more sweeping authority across all aspects of the industry — FINRA stands for Financial Industry Regulatory Authority. Just think about that for a second. Do you think that the name alone implies that this was a strategic move to seize more authority and more responsibility in our industry and to consolidate such power in fewer hands?

You might ask yourself why this is all happening, especially now? My response is quite simple — we stand on the cusp of the greatest wealth transfer the world has ever seen — trillions of dollars, to be exact. Our industry has been fragmented this far — we have people calling themselves financial advisors that range from insurance agents to stock brokers to investment advisors. Even your local CPA and mortgage broker is getting into the game of gathering and managing people’s assets.

If you take a step back and do some honest and objective analysis, you might agree that this whole industry and its myriad of odd players all points to just downright madness — yes, madness. In the sense that trillions of dollars are in motion out there and most clients still really don’t know the credentials of their advisor, the legitimacy of his recommendations, any conflicts of interest that might exist, who’s regulating who, what really is the definition of a security, and on and on….

I certainly do not purport to be the Nostradamus of the financial services industry or the bearer of the gloom and doom that we potentially face. So let me simply predict what to me is obvious and inevitable. There will be an erosion of the rules that we have all grown comfortable in abiding by. This erosion will lead to increased regulation of financial service professionals that will eventually force many advisors out of the industry — frankly, many of these advisors probably had no business calling themselves financial advisors in the first place. Regulatory authority will be consolidated, advisors will be forced to elevate the level of their knowledge and sophistication, and at the end we will wind up with fewer but much higher quality advisors — and the biggest winner of all is the end client and his loved ones. My last bit of advice: pop in your dusty Bob Dylan CD and start humming those infamous words — they are as relevant today as they were more than 40 years ago.

*For further information or to contact this author, please use the forum below.