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I'm sure most of you noticed that the CEO of the Financial Industry Regulatory Authority, Mary Schapiro, has been nominated to be the new SEC Commissioner. This reunites her with Elisse Walter, who had been Schapiro's top staffer; Walter was appointed to the SEC Board of Governors over the Summer. Schapiro will give up a reported $2.1 million annual salary at FINRA to accept a position that pays $158,500.
For the fiduciary planning community, there is good reason to think that this may be the worst possible selection.
Why?
An alert reader might be able to see Ms. Schapiro's thinking about the planning/RIA profession’s fiduciary, consumer-first culture in a letter she co-penned by Walter--then an NASD Executive Vice President--during the height of the Merrill Lynch Rule debate back in April of 2005. The letter expressed "continuing concern with the gap that exists between the regulation of broker-dealers under the Securities Exchange Act of 1934 and NASD [FINRA's predecessor] rules and the system of investment regulation under the Investment Advisers Act of 1940." Most of us familiar with the thousands of complaints of broker abuse, the scandals, the sales of shoddy products et al might think she would be referring to the fact that RIA (fiduciary) regulation had been effective through the scandals, and be concerned that the NASD's regulation was not up to par.
We would be wrong. The letter could have been written by the marketing department of any large brokerage firm. It expresses concern about "an uneven regulatory playing field with disparate standards." This "matter of investor protection" is particularly troubling because the fiduciary duties that investment advisors owe their customers is "imprecise and indeterminate."
On page two of the letter, Ms. Walter comes right to the point: "A careful analysis of the relative regulatory standards shows that the substantive protections afforded broker-dealer customers are equivalent to, and in many cases exceed, those afforded to adviser customers."
Reading between the lines, one can infer that the top executives at the then-NASD were unhappy that fiduciary advisors are gaining market share. Page 5 of the letter complains that adviser advertising "is subject to far fewer specific standards and requirements than broker-dealer advertising. Investment advisers are subject to few specific content requirements, unlike broker-dealers who must comply with a battery of SEC and NASD standards in this area. Investment advisers do not have to obtain principal pre-approval of all sales material and they do not have to file any sales material." (Maybe because fiduciaries are not selling?)
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