Given the choice, every Wall Street broker, independent broker-dealer rep, insurance-only financial advisor or registered investment advisor would probably like a reduced regulatory presence in their lives. Certainly, independent B-Ds would vote to reduce the level of FINRA intrusion if they could. In the same way, RIAs and their advocates are trying to keep FINRA from becoming part of their lives. FINRA has real teeth.

The current situation results in a competitive advantage for RIAs. And even though most RIA representatives are honest, the existing arrangement leaves gaps in the protection of the public.

Most of us who run broker-dealer firms could cite stories about individuals who were banned for life by FINRA or who dropped their FINRA licenses and went to an RIA, and used misleading and promissory advertising that FINRA wouldn't have approved. These individuals thrive in the comparatively underregulated RIA space.

Members of the public deserve proper and consistent protection, regardless of which industry group they deal with. For this to happen, the industry needs a relevant fiduciary standard that is evenly enforced. Otherwise, the public may think it is protected when in reality the applicable regulator has no real teeth or power. This is a poor answer.

We, across industry groups, can do better. I challenge us to work together to seek legislation focused on more effective regulation - not just more regulation.

 

THE MIDDLE GROUND

I believe there are typically three possible options in any situation, with the middle often the best choice. In this case, maybe the most prudent solution would be to equalize supervision of RIAs and independent B-Ds with effective regulations that align somewhere midway between the current standards. In other words, instead of debating whether RIAs deserve to be regulated at the current independent B-D level, perhaps advocates of both categories can jointly seek sensible, effective regulation for all and real protection for the public.

As with many dedicated financial professionals across the industry, we at Cambridge Investment Research observe and support a fiduciary standard that is enforced in a reasonable, unbiased manner. But we also feel that protection for the public is not driven by regulatory mandates, but rather by professionals who consistently put their clients' interests first and do what is right for their clients because it is the right thing to do.

 

 

Eric Schwartz is chairman and CEO of Cambridge Investment Research in Fairfield, Iowa.

 

 

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