The top executives of the nation’s biggest securities firms have gathered once again at their annual meeting and declared that 2005 will go down as one of the industry’s best years ever. Profits of the 600 Securities Industry Association member firms are expected to jump by more than 14 percent, to $23.7 billion, this year on a revenue increase of 32 percent, to an estimated $314 billion. And employment at financial services firms jumped by 14.9 percent in the past year, the Bureau of Labor Statistics reported. (But advisors take note: Retail jobs declined by 1.3 percent.)
In short, the industry has its pre-2000 swagger back. “Turning in such a solid performance under such trying circumstances is an extraordinary example of just how well we convert challenges into opportunities,” says Marc Lackritz, president of the SIA.
But it’s not all good news here at the Boca Raton Resort & Club, a garish faux-Venetian palace between the Intercoastal Waterway and the Atlantic Ocean. Indeed, incoming SIA Chairman James Gorman said in a meeting with reporters that there are too many regulators doing too many of the same things, burdening the industry with a “huge tax on the business.” Lackritz, Gorman and outgoing SIA president and CEO of Wachovia Securities Danny Ludeman called for an overhaul of regulatory structure.
The three told reporters that they would back folding the NYSE and NASD regulatory functions together into a single, hybrid self-regulatory organization, as they put it. The executives said the current situation will force firms to quit the NYSE. Lackritz noted that membership to the NYSE is voluntary; membership to the NASD is not. During his speech, John Thain, CEO of the NYSE, said that the NYSE would work with the SEC and the SIA to “reduce duplicate exams, inspections and rules.” Then, he quickly noted that he is in charge of NYSE business and that Richard Ketchum is the regulatory chief, so “he’d have to do it.”
SIA executives also called on state regulators to set up uniform standards, as a few states already have. Right now, regulators “pile on,” as Ludeman put it, and the patchwork of 50 state regulators make compliance more difficult than it has to be. Dealing with state regulators is “like having to get a new state driver’s license every time you cross state lines,” Ludeman said. They also criticized what they called rulemaking by enforcement, the practice of clarifying a rule, then retroactively fining companies for failure to comply.
Gorman, who recently stepped down as head of Merrill Lynch’s brokerage force to lead Morgan Stanley’s, beginning in February 2006, said the SIA still had to work with the SEC and other regulatory bodies to be sure that regulations, while necessary and important to protect the public, made sense. “What we’re angling for is efficient regulation.” Lackritz said that while the industry cut its work force by 11 percent from 2001 through 2003, compliance personnel grew by 5 percent.
As the new chairman of the SIA, Gorman says he will focus on “what I call the two R’s: retirement and regulation.” Gorman said that Americans' lack of savings is “as close as you can get to a national crisis.” Fully two-thirds of baby boomers are not saving enough. In fact, people are actually saving at a negative rate, relying on real estate and investment capital gains to fund retirement. Gorman wondered what would happen if “trends” reversed and those investments lost money.
There is another issue for advisors of boomers. Ken Dychwald, president of The Age Wave, says the “longevity revolution” will make the job more complex, as clients contemplate 20 or 30 years of retirement. The good news: It will create demand for smart planning and investing services. “I don’t suppose you could dream up a better scenario for your industry,” Dychwald told the conventioneers.