One thing is clear about Rick Ketchum, the chairman and chief executive officer of the Financial Industry Regulatory Authority: No one is apathetic about him. Advisor regulation is a center stage issue, as FINRA lobbies to be named the industry organization that oversees financial advisors. Ketchum is known as intelligent, talented and sincere about the need to regulate all types of financial advice consistently. But the many passionate advocates of the fiduciary standard worry that Ketchum's brokerage industry credentials-he presided over the New York Stock Exchange, NASD and the Nasdaq Stock Market, and was a director of market regulation for the Securities and Exchange Commission-make him personally unsuitable for the task.
Ketchum knows that. He has been questioned by RIAs about how brokerage- and suitability-oriented FINRA will gain trust from advisors on the fiduciary side of the aisle. What does FINRA mean by harmonization? Which fiduciary standard would it enforce? FINRA also faces persistent suspicions about its finances. According to FINRA's 2008 tax filing and annual report, 13 current and former executives received millions in compensation even as the organization lost money in 2008. It is also unclear how much Ketchum is paid at FINRA, notes David Tittsworth, executive director of the Investment Adviser Association. "I think the issues here are a lack of accountability and lack of transparency and those are serious issues," he said.
In an interview, Ketchum defended the payouts, saying that FINRA's compensation committee set those amounts with the guidance of Mercer Inc., an independent compensation consultant. That FINRA is fielding such questions is evidence of its transparency and accountability, he says, because as a private, not-for-profit organization, FINRA is not legally required to report its financials.
Ketchum adds that he has great respect for investment advisors because they provide direct, advice-based services, and operate with a high level of care. The intention, he insists, is not to force independent advisors into a broker-dealer mold. "What we will enforce is the SEC interpretations, no-actions, exemptions and literal interpretations of the [Investment Advisers Act of 1940]," Ketchum says. "We're not going to make it up. We're not going to create something that's different. We're not going to question the basic standard they've operated in."
Good, say advocates of the current standard. But they argue that, should FINRA ultimately become the enforcer of new standards, Ketchum and FINRA face a steep learning curve. There is a difference between importing fiduciary knowledge and being steeped in it.
Ketchum sounds like he is gearing up for the challenge. "Judge us by what our position has been, which is in support of a common harmonized fiduciary standard." Ketchum said. "The broker-dealer standard has to move. It shouldn't be whether the investment is okay. It is whether it is in the best interest of the customer."
Chairman and Chief Executive Officer, FINRA
New York City and Washington, D.C.
Years in industry: 32
First job: Cutting greens at a golf course in Schenectady.
Best career decision: Going to work at the SEC and getting involved in regulatory policy and investor protection issues.
Worst career misstep: Starting in a law firm. That culture wasn't right for me. I didn't feel like I was making a difference-and I have devoted my career to trying to make a difference.
Fantasy career: Manager of the Boston Red Sox.
Favorite way to relax: Running.
Most important thing I learned this year: The importance of continually evaluating how your organization can improve-as FINRA has done by creating a new division dedicated solely to detecting fraud. Any effective agency must be mature enough to evaluate where it can do a better job.
Your wish for the year ahead: A stable securities and financial market, where both investors and firms see their investments grow.
Your worst fear for the year ahead: A relapse into serious economic problems, nationally and internationally.