(San Antonio) Independent broker-dealers and advisors are determined to speak out in Washington, D.C., to ensure that expected regulatory changes in the financial industry don’t “squelch” innovation, according to Dale Brown, president and CEO of the Atlanta-based Financial Services Institute.
“FSI wants a regulatory system that recognizes how we do business …. and we want modernization,” he told the 500-plus attendees at the start of OneVoice 2009, FSI’s broker-dealer conference, which was held at the Grand Hyatt San Antonio from January 28 to 30. “But no more Sarbanes-Oxley, please. That hurts broker-dealers.”
President Obama is expected to present some plans in a report due April 30, 2009. “That will be a pivot point,” Brown said, for topics such as RIAs, self-clearing and related industry issues.
Today, some 40 percent of registered representatives are independent financial advisors,” according to FSI.
“We are really focused on gaining results via our influencing of policy-makers and regulators to positively benefit investors,” Brown shared.
“We have a constructive-engagement strategy. Our track record shows that we have strongly disagreed with off-the-mark regulation,” he said, noting FSI’s successful role in repealing Michigan’s 6-percent services tax in late 2007.
“What lies ahead are some daunting challenges,” Brown said. “Clearly there is more work to be done, and the need for FSI is greater than ever. This is especially true given that families need to trust [this industry], and the Wall Street firms have failed them. Together, we can overcome the threats of the markets and over-zealous regulators.”
In the past 25 years, U.S. economic growth has averaged 3 percent, a feat that “is unmatched in modern history,” described conference keynote speaker Stuart Varney, a veteran of CNBC, CNN and Fox News. The capitalist dynamism that made this feat possible, though, fell apart in the fall of 2008.
“But I see the gloom and doom as a moment of opportunity, and if we don’t lose our heads, we can profit from it,” he shared.
“The United States will be the first to rebound, as the world’s most vibrant economy,” Varney predicted.
In the long term, however, wealth distribution rather than wealth creation will be our national focus, he notes. That’s a result of both the media and public’s attention on high executive salaries and bonuses, and also the economic reality of lower tax revenue from both the recession and declining fertility rates in developed countries.
“Pretty soon, we must bite the bullet” and address fiscal issues such as Medicare and Social Security. And the United States, he points out, is still relatively young — with 29 out of 100 people age 65 and older — vs. many European countries, where 50 out of 100 are 65 and up.
At a CEO panel focused on leadership, several industry veterans described the challenges facing their broker-dealers and the industry in 2009.
“There are tremendous opportunities for the firm, so we are watching everything closely and discussing these [developments] earlier rather than later,” shared Tim Murphy, president and CEO of Investors Capital Holdings in Lynnfield, Mass.
With a host of issues confronting the wirehouses, how can independents stand out? “Invest in growth via marketing and by recruiting advisors who are in a tough spot and need to make a leap,” explains Amy Webber, president and COO of Cambridge Investment Research in Fairfield, Iowa. “Also, support your offices of supervisory jurisdiction and bring them in, counsel and coach them to strengthen their client base by being a trusted advisor to them.”
Tony Pizelo, CEO and chairman of Pacific West Financial Group in Renton, Wash., says his firm’s branch offices have been approaching wirehouse brokers in their local areas where space is available, like Little Rock, Ark. “We target areas and recruit, and we’re finding it a bit easier given the uncertainty at the wirehouses.”
Though most independent broker-dealers do not offer advisors upfront signing or retention bonuses, they still have much to offer advisors — especially those with yearly sales or revenue of $300,000-$400,000, Pizelo says.
“Many wirehouse advisors do not know what it’s like to be independent,” shares Murphy. “So, we have to serve as business consultants and address the fears of wirehouse advisors who are concerned about the viability of their companies.”
Investor’s Capital is eager to let advisors team up and then “support them via a migration of service,” he says.
And while there is not a flood of advisors moving from the wirehouses to the independent model, many wirehouse advisors do not see the retention opportunities that have existed in the past. Still, they are more comfortable with the employee-advisor model. “This will take time,” Murphy explains.
At the end of the three-day event, Brown reminded FSI members that they can expect the group “to be engaged in and influencing the debate on financial-services regulation.” And the group will also closely follow any and all legislative challenges to the independent-contractor status of independent brokers. “We understand the seriousness of this threat,” he explained.