Street Legal: A Call For Overhaul

Recent weeks have been tough at my law firm. I hesitate to answer my phone. One client sobs to me about the loss of his savings, his job and his career. Another caller fears the broker/dealer he runs is one net capital computation away from closing. A laid-off registered rep rages against the destruction of his deferred compensation and seemingly absurd threats to enforce non-solicitation agreements

Recent weeks have been tough at my law firm. I hesitate to answer my phone. One client sobs to me about the loss of his savings, his job and his career. Another caller fears the broker/dealer he runs is one net capital computation away from closing. A laid-off registered rep rages against the destruction of his deferred compensation and seemingly absurd threats to enforce non-solicitation agreements by the firm that acquired his old employer. As a longtime industry dissident/reformer, many of you have sought me out in these dark days. You commiserate with me about the fears and warnings we've shared over the years. We were right, but what difference did it make? Now, only one question matters: What can we do to get out of this mess?

Time To Stand Up

For starters, we need to clean house, and it's time to toss out the baby and the bathwater. We need to reorder the relationship between regulator and regulated, and that means we need to overhaul regulation and recruit more competent regulators. We need effective regulators and effective regulations, and both must be fairly drafted and fairly enforced.

We need to demand that indie/regional firms and individual registered reps cease to serve as whipping boys for the politicians and regulators who are beholden to larger firms. The regulation of Wall Street has been controlled by those with the bucks for campaign contributions, former regulators who've migrated to the private sector for high-paying gigs. That equation must be reworked. This crisis was not caused by boiler rooms or penny-stock manipulators; it was created by the firms with the household names, the biggest and the best.

Less Kissy Face

Too many trade groups preached the virtue of not antagonizing the regulators — as if disagreement were an evil. The bitter fruit of such compromising is that regulators were encouraged to act ineffectively and unfairly. Those cordial, behind-the-scenes discussions elicited sinecures as a substitute for substantive reforms. Regulation need not be a touchy-feely undertaking. If we are going to chisel rules into stone, we have to expect some sparks to fly.

The Profession Of An RR

We must professionalize the career of the stockbroker/financial advisor by enhancing the relationship between the individual registered rep and the client. The registered rep must work for the client and at the firm. That is the only proper equation. That means direct registration by the rep rather than through the member. That means reducing the pro-management/member bias of much regulation. That means the creation of a national trade organization to advance the interests of hundreds of thousands of men and women now disenfranchised in our regulatory system. We must insist upon separate regulators for larger and smaller firms. There can be no economic recovery if it is not driven from the grassroots level by indie/regional firms and individual registered reps.

We must call for an end to the overlapping regulation of federal, state, and self-regulators and seek out a more unified system. We must tear down the morass that has become FINRA, and call for the creation of fairer and more effective replacement. I, for one, believe that self-regulation is a system beyond repair. We must reject any regulator that exalts the preservation of its own power and which disregards the legitimate needs of smaller members and individual registered reps.

Do I think our industry has the will to roll up its sleeves and dig the trenches that will be needed for this fight to regain our lost jobs and savings? Sadly and honestly: No. I have seen far too little willingness to draw the line in the sand. Albert Einstein reputedly said that he believed that only two things were infinite: the universe and human stupidity — but he then quickly qualified his statement by noting his uncertainty about the limitlessness of the universe. Who am I to argue with Einstein?

Writer's BIO:
Bill Singer

is the publisher of RRBDLAW.com and BrokeAndBroker.com

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