Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Regulation and Compliance > Federal Regulation > FINRA

A Fox in the Henhouse?

Your article was successfully shared with the contacts you provided.

A friend and fellow journalist recently e-mailed me asking: “After reading your latest columns and blogs, I’m wondering why you think [SEC Chair] Mary Schapiro is still leaning toward FINRA? After all, she was at the SEC for eight years (appointed by Reagan) and then CFTC before she went over to FINRA.” It’s a good question that bears a bit of exploration.

The first observation I’d make is that Mary Schapiro’s initial job at the NASD was president of NASD Regulation from 1996 to 2002 (Vice Chair from ’02 to ’06, and Chair and CEO until the beginning of this year), placing her in a critical role while Bernie Madoff, Stanford Financial, mortgage backed securities, and virtually every other scandal that’s coming to light now were first occurring. Perhaps that might give us pause about her fitness to head the SEC and/or be the Administration’s point person for an omnibus fiduciary standard for advisors.

But to my mind, the key question is why the NASD (now FINRA) hired Ms. Schapiro in the first place. Seems to me that FINRA/NASD has a long history of pushing consumer protection pretty far down their agenda: mandatory arbitration in front of FINRA-approved arbitrators is but one egregious example that comes to mind. So as far as I can tell, either the NASD thought her record as a Commissioner showed a soft spot for securities sales (as opposed to consumer protection), or they thought the subtleties of a system designed to provide a legal safe harbor for securities sales practices that all-too-often crossed over into the predatory were beyond her. (Remember it was also on her watch as chair and CEO that FINRA convinced the SEC to adopt the “Merrill Lynch Rule” expanding the “broker exemption” so assets could be managed without a fiduciary duty to investors.)

I’m guessing it’s the latter, with perhaps a touch of the former. But either way, it doesn’t give one a lot of optimism that she’ll come down on the right side of a real fiduciary standard, as opposed to some watered-down version that enables business as usual at the brokerage firms. It’s certainly true in this case that the devil will be in the details, and as Ms. Schaprio is in charge of the “details,” we need to keep a close watch on that devil to make sure she doesn’t sell out the side of the angels, either by intent or ignorance.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.