Shrinking Wall Street?

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Oct 21, 2008 5:46 pm

[quote=Getthere]MOrph, it’s my impression that the attorney who you hire for setup can perform and annual office inspection/compliance review - this would be above and beyond what is required.[/quote]
You can hire anyone you deem qualified to do mock audits or other compliance reviews.  You’re correct that that would be ‘above and beyond’ requirements.  


Oct 21, 2008 5:54 pm

That’s why I repeatedly say that anyone seriously wanting to truly understand independent options must be willing to do some work on their own, as it will not come to you in your inbox at work or your mailbox at home.

  It's perfectly fine with me that most people choose this safer route, intentionally or by default.  Those of us who choose independence don't deny that the path involves risk and hard work, it simply means that for us the expected rewards outweigh the risks, and that the risk is a worthwhile price to pay for the reward we seek.   Words worth repeating.   For anyone seriously considering the RIA option, this is worth repeating, because this is what the fear factor comes down to - if you're a risk taker, you know the confidence comes with experience, and the experience, at first, is your own research.  
Oct 21, 2008 7:59 pm

[quote=Morphius] [quote=greyhairedbrker][quote=Morphius] <?: prefix = o ns = "urn:schemas-microsoft-com:office:office" />

......Supervising ourselves often seems scarier, harder and more time consuming in theory than it is in reality.  [/quote]

 

I don't think the point is how scary or hard it is, the question is how long will the obvious conflict of interest in self-supervision be allowed to continue by regulators, and will the current market highlight that obvious conflict of interest to the point that it will no longer be ignored..

[/quote]

 

Interesting perspective.  A couple of quick points.

 

First, we are all our own front line "supervisor" regardless of where we work.  We are each personally responsible for knowing and complying with all applicable regs, whether we are RRs or IARs. [/quote]

 

That “first line” is but a tiny, tiny part of the process. There’s a reason why it’s called supervision (and the term doesn’t include “self” anywhere in it) and why it requires supervisory level licenses to conduct.   And please, leave aside the “helpful or comforting” stuff about  “watching over your shoulder to provide additional supervision”. I’m talking about the regulatory bodies requiring ANOTHER set of eyes and their (regulators) own involvement in the process. It isn’t about fear or comfort or anything else, it’s about applying the same level of regulatory oversight to every channel of the industry.

 

 

 [quote=Morphius]

Second, you obviously don't have any first hand experience if you think RIAs are self-supervised.  On the contrary, they are regulated by the SEC (or the state).  And unlike FINRA, the SEC is not a SRO (Self Regulatory Organization).  FINRA is.  If your beef is with self regulation, your beef is with FINRA, B/Ds, and RRs, not the SEC, RIAs and IARs.
[/quote]

 

I don’t have “beef” with anyone or anything. I’m simply pointing out what you and I (and I do have firsthand knowledge) and everyone else with any experience in the industry knows,  which is that supervision and oversight at the vast majority of RIAs has been something of a joke. It’s an open secret that the regulatory bodies don’t have the manpower, nor have they made the effort to watch the vast majority of RIA any anywhere near the same level of scrutiny that they’ve watched large B/Ds.

 

My guess is given the expansion of the RIA channel and the recent market turmoil will cause that low level of oversight to change and that change will come at some expense.

Oct 21, 2008 8:03 pm
Morphius:


Again, I’m not sure I follow you.  Was there one or more recent big stories about incompetent RIAs crapping in their pools, to use your terms, or is this again something you are simply expecting to see happen sometime in the future?

  There's been a number of examples of that in my region, and I think the latest market turns and the rapid expansion of the RIA channel will draw more attention to that arena. IMHO, that's been a regulatory backwater and that's about to change.
Oct 21, 2008 11:20 pm

[quote=greyhairedbrker]<o:p> </o:p>

I don’t have “beef” with anyone or anything. I’m simply pointing out what you and I (and I do have firsthand knowledge) and everyone else with any experience in the industry knows,  which is that supervision and oversight at the vast majority of RIAs has been something of a joke. [/quote]

I have apparently somehow missed these revelations about all these unsupervised and unregulated RIAs.  Please enlighten me with some specifics, which must be plentiful since "everyone" knows this.





Oct 21, 2008 11:30 pm

Morph,

  What I have been referring to "up until now" is that the ease of entry to becoming an indy RIA has been nil, a series 66 and some registrations with the state. You are correct in stating that there are many unqualified advisors in all channels, I do not dispute that. But the RIA minimum requirements have made it silly how easy it is to hold oneself out as an investment advisor. Up until this calamity (read: market correction), these minimums went unnoticed and unquestioned and I believe that this will change because of the meltdown.
Oct 22, 2008 12:29 am

Mucho,

As you know, I agree that it is way too easy to enter this business, regardless of whether one does that as an RIA or a RR.   Passing a S65/66 or a S7 proves little other than you satisfied minimum regulatory requirements to be allowed to operate. 

What surprises me is the common misconception that most RIAs are wet behind the ears rookies.  Those who bother to look beyond the stereotypes find that most RIAs began as RRs and only transitioned AFTER gaining significant experience. 

If the regulations governing RIAs are truly so much more lenient than those governing B/Ds and RRs, why won’t most B/Ds allow their reps to act as IARs and personally provide advice for a fee?  Wouldn’t you expect the opposite? 

Oct 22, 2008 3:21 am

[quote=Morphius] [quote=greyhairedbrker]<O:P> </O:P>

I don’t have “beef” with anyone or anything. I’m simply pointing out what you and I (and I do have firsthand knowledge) and everyone else with any experience in the industry knows,  which is that supervision and oversight at the vast majority of RIAs has been something of a joke. [/quote]

I have apparently somehow missed these revelations about all these unsupervised and unregulated RIAs.  Please enlighten me with some specifics, which must be plentiful since "everyone" knows this.





[/quote]  

No one said they were "unregulated". It's more like they're under-regulated and under monitored. When the "first line" is just about the only line, things happen.

We've had two high profile cases in the last year within 100 miles of each other in my area. One ended in a high profile trial and prison time because the advisor commingled and squandered client funds with extravagant living. The other amounted to an RIA slinking out of town in the middle of the night, leaving shreds of client assets secure but significantly diminished due to inappropriately risky trades gone wrong. By the time clients got their statements to see the damage, they couldn’t locate their advisor. His office was closed, the phone disconnected.

Oct 22, 2008 3:41 am

Two cases.  Two.  Wow.  That’s it?  That’s the epidemic you’re concerned about?

How many arbitration cases involving RRs during this same period?  Hundreds? Thousands? 

But more to your point, how does two - TWO! - cases support your contention that oversight at the “vast majority of RIAs” is “something of a joke?”  Vast majority - two?!  Jail time is a joke?  How many bad RRs did FINRA send to prison during this same time frame?

Oct 22, 2008 4:10 am

Morph,

  Dude, relax... easy there. His contention was that supervision of the vast majority of RIA's was a joke.  Also, under-regulated is really what I meant earlier to describe this channel and that leads me back to what I was saying about the costs going up... there will be more regulation and oversight, thus more costs for all.   The real estate industry is another example of a needed cleansing that will rid the profession of unqualified agents. When my local plumber quit to become a realtor, I knew the top was in. At least he can fall back on a skill set. Some of these unqualified indy RIA's AND brokers can't. 
Oct 22, 2008 4:58 am
Morphius:

Two cases.  Two.  Wow.  That’s it?  That’s the epidemic you’re concerned about?

How many arbitration cases involving RRs during this same period?  Hundreds? Thousands? 

But more to your point, how does two - TWO! - cases support your contention that oversight at the “vast majority of RIAs” is “something of a joke?”  Vast majority - two?!  Jail time is a joke?  How many bad RRs did FINRA send to prison during this same time frame?

 

Take a deep breath, will you? That's two high profile cases I'm aware of in a relatively small area in a short period of time. I never said the vast majority was two, there's no reason to get hysterical. Neither of us know how many smaller cases or arbitrations didn’t gather any attention.

If you can't admit the channel has been a backwater when it comes to supervision and regulatory oversight, that's your issue. I think it's pretty clear that channel has grown a great deal, the barriers to entry are very, very low and the recent market down turn will be attracting the attention to that backwater status. That’s not a slight of anyone involved, I’m sure they’re every bit as ethical on average as anyone in any other channel, it’s just that the “front line” we discussed is often the extent of the supervision. That will change and there will be costs associated. I don’t know how that can be seen as a controversial or condescending position about where the industry is going.

Oct 22, 2008 12:16 pm

Now the channel is a “backwater” of supervision and regulatory oversight?  Still no facts offered to support this or your other sweeping generalizations about the majority of RIAs beyond simply making the statement.  I’m sure by now if you had any hard evidence we would have heard it.  That we haven’t speaks loudly.

I could care less if you are content to adopt personal opinions based simply on hearsay.  Clearly it’s easier to do that than it is to arrive at a conclusion through actual examination of the facts.  It’s at least progress that you conceded that you don’t know how many cases there have been.  Where I get confused in all this is how you get from you don’t know how many cases there have been to everyone knows the channel is a backwater that infects the majority of RIAs.  

You want to believe this is my issue, you go ahead.  It’s much easier to do that than actually supporting your claims. 


Oct 22, 2008 1:31 pm

It IS my opinion that the independent RIA channel HAS been under-regulated and under-supervised, that the barriers of entry were lax, AND that this is all going to change because of this market meltdown and costs are going to go up.

How this f**king thread got so off track is beyond me.
Oct 22, 2008 2:21 pm

[quote=Mucho de Tejas]It IS my opinion that the independent RIA channel HAS been under-regulated and under-supervised, that the barriers of entry were lax, AND that this is all going to change because of this market meltdown and costs are going to go up.[/quote]
Thanks for clarifying that you are simply stating an opinion, tejas.  That’s more than greyhairdedbrkr has done.  

[quote=Mucho de Tejas]How this f**king thread got so off track is beyond me. [/quote]
Best I can tell it was this post by you that turned the topic to the RIA compliance issue:
Before you get too enamored with RIA model domination, you may want to consider what is going to happen after this rout in the markets... compliance costs and supervision are going to skyrocket. The easy days of becoming an independent RIA are over with. Pass a series 66 and you can offer investment advice for a fee, that's it??? Well, golly, I guess I will do that in my spare time while I am not changing tires at Wal Mart.

Why this focus on the independent RIA, when it is so obviously an industry wide issue?  Do you honestly think that passing a series 7 is a significantly better or higher barrier to entry than passing a series 66?  If so, how do you explain so many posts on this forum from reps who clearly are in over their head? 

Ignorance knows no bounds.  You'll find it in any channel you look.  But I have yet to see anything beyond opinions and hearsay to support the premise that the problem is any more prevalent in the RIA channel than in the RR channel.    
Oct 22, 2008 2:51 pm
Morphius:

[quote=Mucho de Tejas]It IS my opinion that the independent RIA channel HAS been under-regulated and under-supervised, that the barriers of entry were lax, AND that this is all going to change because of this market meltdown and costs are going to go up.[/quote]
Thanks for clarifying that you are simply stating an opinion, tejas.  That’s more than greyhairdedbrkr has done.       

 

Give it a rest, Morphius. I gave you an opinion and a little anecdotal evidence. You took it as a frontal assault and responded with rage and distortions of what I’d said. Frankly, if you’re unable to concede the basic fact that the RIA channel has fewer checks and balances, particularly when it comes to smaller RIA offices than the other channels in this industry there’s little reason to continue this. Have fun.<?: prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Oct 22, 2008 3:56 pm

[quote=greyhairedbrker] 

Give it a rest, Morphius. I gave you an opinion and a little anecdotal evidence. [/quote]

This is what you call stating an opinion?

"I’m simply pointing out what you and I (and I do have firsthand knowledge) and everyone else with any experience in the industry knows,  which is that supervision and oversight at the vast majority of RIAs has been something of a joke."

Do you express all your opinions with the preface that you (and everyone else) 'know' something with 'first hand knowledge'?  If that's how you state your opinions, how do you express actual facts that can be supported and defended?

In any event, thanks for the belated clarification that you were simply offering an opinion.


[quote=greyhairedbrker] You took it as a frontal assault and responded with rage and distortions of what I’d said. [/quote]

Yet another opinion disguised as a fact.  Insisting that you actually defend your opinions constitutes a 'frontal assault' full of 'rage' and 'distortions'?  You're obviously also prone to hyperbole, as well as offering opinions in the guise of facts.  But I guess tossing out such silly accusations is a lot easier than actually trying to defend your own positions.



Oct 22, 2008 4:38 pm

 if you’re unable to concede the basic fact that the RIA channel has fewer checks and balances, particularly when it comes to smaller RIA offices than the other channels in this industry there’s little reason to continue this. Have fun.

  Maybe I've missed something here. In my opinion, a lot of b/d oversight has to do with suitability.   First, disclosure about costs, commissions, product switches related to commissions, so on. Being clear about costs.   Second, risk tolerance as it relates to basic asset allocation, having a questionaire in the file that relates to risk -reward ( an investment policy statement), and so on.   By definition ( at set-up) RIAs are going to be doing what independent b/d advisors do. I don't see, where (my) b/d is coming in and looking over my shoulder, other than to monitor for these two conditions.   Where is this big lapse in "oversight"? You are just as accountable to your clients either with the b/d affiliation or with your own firm. With complaints, at the b/d you go to your compliance department, and if you are independent you notifiy the attorney you keep on retainer. In both situations, you have E&O insurance with a high deductible. You're on the hook, though, for mistakes or dishonesty, or incompetence. Are you saying that the politics of industry regulation will shift toward generous custodians with deep pockets? Why would it be easier to collect from the partners at Jones than a small bankrupted RIA if the disclosure and investment policy bases are already covered?   I confess, I was guilty of doing some "wishful thinking" that RIAs were less protected than b/d affiliates. Change takes a lot of work, our minds can protect us from stress and effort. But let's be clear, your statement - It IS my opinion that the independent RIA channel HAS been under-regulated and under-supervised, that the barriers of entry were lax, AND that this is all going to change because of this market meltdown and costs are going to go up. -  will either be proved or disproved in the coming months, and the implications (regarding the small RIA, let's say 25m to 75m) will be enormous.   Almost everything on these threads is about the same topic, delivering advice in the future. Keep an open mind, everyone here still has face and has to face an uncertain future (except Putz), heh.
Oct 24, 2008 3:36 am

So, back to the original question, Does any body remember seeing news in the 90’ about what caused the financial advisor corps to shrink from hundreds of thousands to tens of thousands in England?