The Financial Services Institute (FSI) has built a solid working relationship and dialogue with FINRA and its leadership over the years, constructively engaging on behalf of our members. We were pleased that FINRA CEO Rick Ketchum took part in our National Discussions last month, and his willingness to answer the top questions on the minds of our members. Our voice is also heard through 20 FSI members currently serving on FINRA District Committees around the country.
Part of our engagement with FINRA is also to let them know when they have gone too far. That is clearly the case with the substantial fee increases the organization recently proposed for broker-dealers and financial advisors—increases that would hit small firms the hardest.
FINRA’s proposed fee hikes would impose significantly higher costs on broker-dealers for branch office registrations, new member applications, continuing membership applications and Central Registration Depository (CRD) filings, as well as for advertising and sales literature reviews.
As we made clear in our comment letter to the SEC on July 19 (and in an interview earlier this week with AdvisorOne), this is clearly not the right time to impose these higher fees. Many IBDs are struggling to stay afloat in today’s weak economy, and FINRA’s increased charges would come on top of recent increases in SIPC assessments, SEC fees, fidelity bond premiums, and errors and omissions (E&O) insurance premiums. Imposing further fees on broker-dealers at this time could threaten to drive many of them out of business.
Aside from the timing, the size and scope of these new proposed fees will collectively have a serious negative impact on IBDs, most of which already operate within razor-thin margins (from 2004 to 2009, the median profit margin for IBDs was 1.7 %, according to FSI’s 2010 Broker-Dealer Financial Study).
This is especially true for IBDs, which predominantly serve Main Street American investors. If FINRA’s new fee structure remains intact, much of the costs will be passed on to this group of investors, many of whom could be priced out of the market entirely as a result.