One of the talents you develop from being a reporter for too long is the ability to spot a “source” when you see one. I’m not talking about a Woodward-and-Bernstein-deep-throat here: I’ve never thought that kind of gotcha “information” truly helps readers much, even when it topples Presidents or wins Pulitzer prizes.
What really gets my nerdy journalistic juices flowing is coming across someone whose experience and perspective gives me new insight into an issue that’s important–and hopefully, valuable–to independent financial advisors.
I recently had the pleasure of meeting just such a source at the annual fi360 conference in Scottsdale, Arizona. Fi360 is the leading organization for training and supporting advisors who want to assume a genuine fiduciary duty to their clients, and Kristina Fausti is the organization’s new director of legal and regulatory affairs. That’s not usually a position prone to produce invaluable sources (if my experience is any indication), but Fausti may well set a new standard in that regard. She had been on staff at fi360 for about two weeks when I met her at the conference, but armed with an MBA and a cum laude law degree from Georgetown, she spent the past four years as a special counsel at the Securities and Exchange Commission where she specialized in broker/dealer regulation.
If you want to know something about, say, the pending reregulation of financial advisors, how the SEC will determine its position, or how Washington, DC, works in general, Fausti is about as good as it gets. After talking with her in person and on the phone, and listening to her present two Webinars on the coming rereg, it’s fair to say that she has indeed changed my perspective. By adding a healthy dose of reality to my overly idealistic notions, Fausti refocused my thinking into the realm of what’s possible, and has given me a glimmer of optimism that the outcome could be better for consumers and real advisors than I had feared.
The first dose of reality that she imparted was how the SEC determines its positions on issues such as reregulating financial advice. In general, when an issue like this one comes up, the Commissioners hand it off to staff attorneys to conduct research and make recommendations. Among other things, the staffers meet with “experts” upon whom they rely for information and insight on the subject. This is important, because to have an impact on the staff (and therefore on policy), one has to be credible, and provide information on solutions that the SEC sees as reasonable.
When she made this point, a light went on in my head remembering pictures I’d recently seen in the news: I asked if that was the problem with Harry Markopoulos, the whistleblower who for years tried to tell the SEC about Bernie Madoff’s fraud. She smiled, and said, “Exactly.” Apparently, Markopoulos just didn’t come across as credible, and was therefore easy to dismiss.
Although Fausti has no direct knowledge of this, it’s possible that the financial planning organizations have suffered from the same sort of stigma by taking positions that may have been deemed “unrealistic.”
My second dose of reality came in the form of what Washington insiders–regulators, legislators, the Obama Administration–would deem to be “possible.” While my earlier suggestion (see my May column) of “advisor-only” firms such as exist in law and accounting might be a good solution, such a massive overhaul of the system has about as much chance of seeing the light of day as Madoff does. Washington is far more likely, Fausti gently informed me, to tweak the existing system than to rewrite the investment advisor legislation. Which is why FINRA is a more likely regulator than the CFP Board, and the SEC is spearheading the proposal process rather than an independent body.
Depressing as that may sound to independent advisors, and to interested observers like myself, Kristina’s realistic assessment actually leads to more optimistic possibilities. To begin with, her contacts are now telling her that the new Administration appears more disposed, at least in the short term, to a “scaled back” reregulation rather than comprehensive reform. That means that those of us who believe the advisor legislative/regulation system needs a major reworking have more time to lobby on its behalf.