At press time on January 15, the Senate Banking Committee was holding Mary Schapiro’s confirmation hearing to be the next head of the Securities and Exchange Commission (SEC). Most advisors are less than pleased–to put it lightly–that Schapiro was chosen by President-elect Barack Obama as the Commission’s first woman chairperson because they worry that her experience at FINRA will skew her judgment when it comes to writing regulation that affects advisors and give her more impetus to push to have FINRA regulate advisors.
But there are industry watchers–like former SEC Chairman Harvey Pitt–who say that Schapiro will use an even hand and will weigh all the issues when it comes to regulating advisors–after all, her career also includes serving at the SEC.
It’s looks as though advisors aren’t so easily convinced. Here’s how Bedda D’Angelo, president of Fiduciary Solutions in Durham, North Carolina, responded to an informal e-mail poll of advisors that I conducted recently. At FINRA, she said, Schapiro “frequently lobbied to have all advisors regulated under FINRA. Essentially, she would like small SEC-registered firms and state-registered firms to be FINRA regulated.”
Patrick Burns, an attorney with Advanced Regulatory Compliance, says Schapiro’s FINRA experience coupled with the fact that she now heads the SEC “will at least bring up the issue for discussion again.” The alternative to FINRA overseeing advisors, and what advisors would definitely prefer, is a self-regulatory organization (SRO) for advisors, which will also be up for debate this year.
D’Angelo also said in her e-mail that Schapiro “makes no provision for insurance agents, who are primarily regulated by their respective state insurance commissioners, and even though most are FINRA registered because they sell mutual funds and variable annuities, insurance-owned broker/dealers are rarely scrutinized by securities regulators.” While “Mary Shapiro means well, she has no idea how vastly the services provided by RIAs who combine financial planning with investment management differ from the services provided by FINRA-registered brokers.”
Disastrous, or Exactly What the SEC Needs
George Papadopoulos, a planner in Ann Arbor, Michigan, said in his survey response that Schapiro “has the potential to be a disastrous SEC appointment for independent RIAs. Based on her record of many years of not defending a fiduciary standard to apply to all advisors, and her very extensive contacts and relationships with executives from disgraced investment banks and wirehouses, we independent RIAs should be very afraid and threatened by her. Let’s all remember that FINRA was supposed to be regulating [Bernie] Madoff, too.”
But former SEC Chairman Harvey Pitt told me in an e-mail that he believes “it’s a mistake for investment advisors to worry about what the SEC will or won’t do under Mary’s leadership. There are five commissioners, and each of them gets the same vote.” Pitt, who’s now the CEO of the global business consulting firm Kalorama Partners in Washington, says that Schapiro “will take the time to understand all of the concerns on both sides of the issue and come up with an appropriate way to resolve the regulatory concerns.”
Pitt says Schapiro is “exactly what the SEC needs now,” because she’s “smart, seasoned, has served at the SEC, and has had a successful record as an outstanding regulator.”
Reuters recently reported that SEC Commissioner Kathleen Casey said she “strongly believed” the rules for investment advisors and broker/dealers need to be “harmonized,” noting that investors can’t distinguish between the two. “In light of the size and growth of investment advisory business and overlap, an SRO could serve as an important enhancement to the SEC’s ability to police the markets,” Casey told Reuters.