In conjunction with the Business & Wealth Management Forum near Chicago in October, I hosted a leadership forum that was basically a six-hour brainstorming session with 40 of the best minds in the planning community. Our goal: to identify serious challenges to the profession and figure out what we could do about them. As it turns out, we never got past No. 1, and the more we talked about it, the more the group moved to a state of alarm from complacency. By the end of the day, we concluded that Wall Street is creating a plausible way to eliminate the independent RIA community.

I wrote a 15-page report on our deliberations, available to anybody who asks me for it. But the chain of logic is not hard to follow. Brokerage firms have been losing market share to independent RIAs for decades. Since the 2008 market disaster, scandals, bailouts, bankruptcies and forced sales, this erosion has accelerated - reinforced by an exodus of top brokers who see how good it is working where nobody tells you what to sell.

The leaders of these firms are smart enough to see the threat to their business model. We concluded that they'd use every possible resource to stop the bleeding. To survive, they would need to eliminate the pesky fiduciary RIA competition - those who make it possible for consumers to have a choice about where to get their financial advice.

That's when we all looked at each other and realized that our cherished, still-fragile profession was in the crosshairs of the most powerful industry in the global economy.

Were we being paranoid? Or is our profession in actual danger of extinction? As we talked, we realized we've been watching Wall Street orchestrate our demise for years. The Republican leadership in Congress has proposed that the SEC authorize one or more self-regulatory organizations to take over regulation of RIAs. This has been coordinated with massive Wall Street lobbying and with FINRA's public assertions that it really wants the job.

You know that the Wall Street brokerage firms control FINRA through their seats on its board of directors. Some might see a pattern here. The plan, quite simply, is for FINRA to take over regulatory supervision of RIAs.


Most advisors regard potential FINRA regulation as, at worst, an annoyance. But as the leadership forum participants looked at how FINRA regulation of RIAs might work in the real world, the picture became more alarming. A securities attorney pointed out that FINRA examiners have no experience with the fiduciary business model. They're accustomed to imposing a lot of procedural hurdles and burdens on how you run your business, and the whole independent RIA mind-set of, "It's good if it benefits my clients," would no longer be tolerated.

Under FINRA, you'd pay for the privilege of being regulated. How much? Those with direct experience with FINRA estimated that self-regulatory membership would run at least $15,000 a year for smaller firms, more for larger ones.

It gets worse. We were told that FINRA examiners are much quicker to bring enforcement action and hold on-the-record hearings when they find something they don't like or don't understand - unlike the SEC, which usually handles non-criminal activities with a deficiency letter. When enforcement is involved, so too are legal expenses.

So let's imagine that FINRA achieves its regulatory ambitions. Now a bureaucrat has to pre-review every piece of correspondence you send, which may take weeks or months. You've paid your $15,000 (or more), set aside $100,000 to meet a new net capital requirement and stopped communicating with your clients unless absolutely necessary. You now devote half your time to paperwork.

FINRA inspectors knock on your door. What you don't yet know is that the FINRA board has decided firms like yours are a pest. They've brainstormed - in secret, in board meetings held entirely outside public view - a number of creative ways to find fault during the RIA inspection process. This ties you up in expensive litigation. There are accounts of your "regulatory problems" in the local newspaper.

Meanwhile, FINRA is sending out press releases saying its zealous enforcement is "cleaning up the mess left by the SEC," and that the organization is being "hyper-vigilant about protecting the public in this post-Madoff world ... bringing a breath of fresh air to consumer protection."

How long do you think you'll be in business after your second annual inspection? How long do you think Wall Street's primary competitor will survive under these (entirely plausible) conditions? In my report, I call this "regulatory Armageddon."

With the benefit of hindsight, we can see Wall Street laying the groundwork for this extinction plan as far back as 2007, when the NASD merged with the New York Stock Exchange. The merged organization decided to change its name from the National Association of Securities Dealers (which forthrightly describes an organization of investment salespeople) to the more general-sounding Financial Industry Regulatory Authority.

The fiduciary world immediately smelled a rat. Was the brokerage industry's self-managed trade organization's plan to expand its regulatory reach consistent with the new name? People might object immediately to securities dealers taking over regulation of independent advisors, just as they wouldn't want drug manufacturers regulating doctors. But the Financial Industry Regulatory Authority sounds like a natural fit to regulate "the financial industry."

When FPA and NAPFA leaders raised these concerns, NASD spokesman Howard Schloss said: "I would need a degree in psychology to comment on the level of paranoia in this press release." These days, everyone seems to have forgotten that the group was calling people paranoid for worrying about exactly what FINRA seems to have been planning all along.


I said earlier that FINRA's board-level deliberations were closed to the public and take place in secrecy. Last year, Elton Johnson, a former Green Beret who runs a small independent broker-dealer (Amerivet Securities), introduced seven proxy votes onto FINRA's annual meeting agenda. FINRA members were asked to vote on whether the organization should publicly disclose the compensation paid to its 10 most highly paid employees. They voted on whether FINRA should disclose its investment transactions to its members. And most important, they voted on whether FINRA should open up its board meetings so that members and the public could watch the deliberations among Wall Street executives and others who have, heretofore, set the organization's policies in secret.

All seven of the Amerivet initiatives passed overwhelmingly. The FINRA board of directors debated these measures in a closed meeting and decided to reject them.

A month ago, we got another window into FINRA's culture of openness and transparency. According to The Wall Street Journal, SEC officials in Chicago asked a Kansas City FINRA office director to produce NASD staff meeting minutes. Before turning them over, he edited the minutes, removing passages and changing the author's signature. When this came to light, the SEC allowed the organization to neither admit nor deny guilt, but simply agree to hire an independent consultant and boost its internal compliance - a light tap on the wrist for actions which, ironically, would bring severe repercussions under FINRA's own rules.

The NASD's CEO at the time of that violation is the same person who was responsible for deciding how gently the SEC should tap FINRA's wrist. This person ran the NASD when its new name was proposed, and her press secretary called speculation about expanded regulatory ambitions "paranoia." Her SEC now says it wants to delegate inspection of RIA offices and has done nothing to get FINRA to open its board deliberations, although FINRA is under her direct supervision. She received $9 million in severance from the brokerage executives and others on FINRA's board of directors when she left to run the SEC. I'm talking, of course, about current SEC chairwoman Mary Schapiro.

The leadership forum came up with a possible solution to the challenge: the creation of an independent, self-regulatory organization that would do a much better job of protecting financial consumers than any regulatory body is doing. We'll need your support if we hope to stop regulatory Armageddon.

Bob Veres, a Financial Planning columnist, writes and publishes the Inside Information service for financial planners at



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