You would be hard pressed to find anybody in the retail investment business who thinks the industry is under-regulated. But the most put-upon group of all may be independent broker/dealer organizations. At least that’s what you would have heard in the hallways at the Financial Services Institute’s (FSI) conference in San Diego this week. At its second annual conference the Financial Planning Association spinoff organization announced more plans to represent the special interests of indie b/ds with regulators, including the launch of FSI PAC, a Washington lobbying unit.
John Simmers, CEO of ING Advisors Network, a founding member of FSI’s board of directors and a nominee to the NASD Board of Governors—he would be the first from the independent channel—says regulatory burdens fall disproportionately on small firms. “There is an unequal burden,” he says. There is no data to prove that regulators bring more actions against small independent b/ds, he says, although that is a widely held view in the industry. But, he says, it is clear that when regulators add new rules and issue new requests for information it is far more costly for FSI member firms. “The press and the industry don’t understand the economics of the independent b/d channel,” he says.
FSI is working on several levels to change that. In 2005, 17 FSI members were elected to serve on nine NASD District Committees, and eight members are on District Nominating Committees. The new FSI lobbying initiative, FSI PAC, is lead by Tony Batman, former chair of FSI’s board of directors. One of the PAC’s main goals, he says, is to identify and support key members of Congress who “truly see eye to eye with independent b/ds on important issues.”
To support these efforts, FSI is focusing on increasing membership. Currently there are 91 b/ds, representing firms with a total of $8 billion in annual revenue in the organization. In addition, almost 3,000 individuals have registered with the group. Jeff Montgomery, chair of the conference task force, says the goal by the end of 2006 is 10,000 individual memberships.
Lon Dolber, president and CEO of American Portfolios in Holbrook, N.Y., believes the FSI is vital in helping the independent b/d cause. “A huge percentage of reps are independent agents,” he says. “Why shouldn’t they have a voice?” Dolber, who now has 400 reps in his network, says he forces his regional managers to join FSI, in part, because FSI provides education to reps on key issues. Dolber is concerned about the proliferation of oversight activities that add costs to an industry that already has thin margins. “Every time you turn around there’s a new regulatory challenge and that means a new systems challenge,” he says.
SEC commissioner Cynthia Glassman offered her own advice to FSI members on building a better relationship with the SEC. “The key to having a good relationship with us is having a great relationship with your clients,” she said in her closing-session speech. After Glassman listed top complaints by investors, one attendee asked if she could identify which complaints were particular to the independent sector. Glassman said the SEC did not break the data down that way. The respondent remarked on the importance of separating such information among the different advisory channels rather than grouping them together. “I will certainly take that concern back to the SEC and let them know. You make a good point,” Glassman said.