WealthManagement Magazine

A Footnote to the Levitt Legacy

While advocating for investors, he forgot about brokers.You've read about the wonderful pro-investor legacy SEC Chairman Arthur Levitt Jr. leaves as he exits office this month.No argument there. Levitt learned to use his soapbox masterfully to challenge entrenched Wall Street and corporate interests.Yet he was plagued by an anti-broker tone and missed many opportunities to protect brokers and therefore

While advocating for investors, he forgot about brokers.

You've read about the wonderful pro-investor legacy SEC Chairman Arthur Levitt Jr. leaves as he exits office this month.

No argument there. Levitt learned to use his soapbox masterfully to challenge entrenched Wall Street and corporate interests.

Yet he was plagued by an anti-broker tone and missed many opportunities to protect brokers and therefore investors.

Take the rogue broker scare. Instead of punishing firms for failing to supervise and disclose problem reps, the SEC proposed giving firms more legal protection from broker defamation suits, thereby eroding existing state-law protections for reps. Levitt enthusiastically supported the idea.

That rule was deep-sixed, but it's still open season on brokers. The NASD continues to draft broker-unfriendly rules without input from registered reps.

Has Levitt forgotten that his 1996 sanction of the SRO requires the NASD to consult with all constituencies in its rulemaking?

Though he jawboned firms to curtail recruitment deals, Levitt failed to ensure broker and client mobility. The SEC dropped the product-portability ball and did nothing to curtail abusive TROs or end chronic account-transfer delays (the biggest complaint investors have).

Levitt called for improved disclosures of mutual fund fees, but Wall Street still gets away with not disclosing payments from product vendors. He criticized broker pay plans, yet never addressed how firms reward managers for pushing products. Surely all payments and bonuses linked to product sales merit full sunlight.

Chairman Levitt really does respect brokers as professionals. That's why I'm puzzled by the SEC's proposal to maintain Wall Street's exemption from the Advisers Act. That means you would remain a lowly salesperson, not a fiduciary.

I realize that my broker-specific pet peeves may seem insignificant compared with many larger issues Levitt tackled. Perhaps they are. But I'm afraid even Levitt - a former broker - fell into the trap all regulators do: They see brokers as trouble-prone salespeople, not investor advocates in need of protection.

Wrong, wrong, wrong! If just one broker is left in the dark or abused, the same thing happens to hundreds of his customers.

In my December column, I said the SEC spends industry money on town hall meetings.

Levitt's office took issue with that, saying the events are run jointly by the SEC, other government agencies as well as consumer, education and industry groups. Each organization pays a pro rata share of the costs, typically $500 to $700 each meeting. A nongovernment member acts as treasurer.

In September 1999, Chairman Levitt called on public (and presumably independent) SRO board members to make some waves, to "jealously guard the self-regulatory standards" and "to begin a public dialogue" on market reforms.

My thoughts exactly. That's one reason I ran for a seat on the NASD board of governors in 1998. The SRO's handpicked board members seemed too insular. So I joined a slate of outside candidates who collected member signatures to get on the ballot.

Thankfully, I lost. But when the NASD late last year proposed a rule change allowing it to campaign for its own nominees while requiring more signatures for outside candidates to qualify, I asked the chairman's office to comment.

I'm still waiting for the speech.

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