At Independent B/D Confab, Optimism and Skepticism

The head of the Financial Services Industry Institute (FSI), the association representing independent broker/dealers, is feeling a little more comfortable with regulators. But, on the other hand, John Simmers, chairman of the FSI, also warns that the combining of the NYSE and NASD regulatory bodies might create a power struggle among “second-level” regulatory staffers as they try “to make a name for themselves.”

The head of the Financial Services Industry Institute (FSI), the association representing independent broker/dealers, is feeling a little more comfortable with regulators. But, on the other hand, John Simmers, chairman of the FSI, also warns that the combining of the NYSE and NASD regulatory bodies might create a power struggle among “second-level” regulatory staffers as they try “to make a name for themselves.”

On the positive side, Simmers said at FSI’s annual independent b/d conference in Orlando, Fla., is that regulators may actually understand the independent b/d business model after all. In a speech that opened the conference yesterday, Simmers said, “I found that NASD board members were more open-minded, savvy business people” who are more willing to understand the independent-contractor rep than he had originally thought.

Many independent b/d-channel executives have perceived a bias toward them by the NASD and SEC; independent b/d executives say that regulators have told them in the past that they are tougher to regulate because their independent-contractor reps work in remote offices without much direct, personal supervision. Independent b/d executives have long maintained that modern technology allows them to supervise their independent-contractor reps on a daily basis and just as closely as any traditional, branch-bound employee rep. “There’s a flawed perception by some regulators that independent b/ds are inherently more problematic than employee b/d models,” Simmers said.

To counter that perception, the FSI plans to release a White Paper next month to demonstrate that “the independent b/d model is as effective, if not more effective, than the employee model,” Simmers said. But Simmers softened his criticism, saying that he has confidence in the NASD Board of Governors, where he has served as a member since February 2006.

But Simmers went on to warn FSI members that the merger between NYSE and NASD regulation may sprout an abuse of power by “second-level” management under Mary Schapiro. “One of our challenges is to watch how politics work in the second level below management of the NASD. With the combined staff of the NASD and NYSE, there’s going to a lot of politicking for power, and there may be opportunity for people to abuse that power to make a name of themselves.”

Simmers said the FSI, just three years old, had many successes last year. For example, Simmers said the FSI was asked to participate in the SEC’s study of regulatory structures, as well as the Certified Financial Planners’ Board of Directors discussion on proposed changes to practice standards and an NASD roundtable on insurance matters. At the same time, Simmers added, the group increased individual membership by 75 percent, to over 5,300 reps, and added 12 additional b/ds, bringing the total to 100 firms.

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