Financial Services Institute Clarifies Its Use Of "Independent Financial Advisor," Stance On RIA SRO

Wednesday, August 10, 2011 18:02
Financial Services Institute Clarifies Its Use Of

Tags: financial advisor | independent broker-dealers

A4A readers were a bit perplexed to hear about how the Financial Services Institute -- the umbrella group for independent broker-dealers -- is staking its claim in the industry. So I asked them to clarify.

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FSI spokesman Chris Paulitz knew exactly where I was coming from when I said RIAs were pondering the group's mandate.


Regarding why the FSI bills itself as an organization for "independent financial advisors," his answer was straightforward: most of the members are hybrid RIA/reps.


"We use the term 'independent financial advisor' because the majority of our financial advisor members are dual registered as registered representatives and investment adviser representatives," he says.


I know a few of you are skeptical about exactly how these dual registered types operate in practice, but there it is. I've seen plenty of financial planners who offer both fee- and commission-based service "in order to reach a broader range of clients."


Now as for why the FSI has lobbied to move RIA supervision to a self-regulatory organization (SRO) like FINRA, Paulitz says it's to protect investors and ultimately, for the industry's own good:


"We support a harmonized fiduciary standard of care and SRO for advisors because we believe these changes will result in uniform investor protection whether investors choose to work with registered representatives or investment advisors.  Currently, the average RIA is only examined once every 11 years. If all advisors are regulated by the same SRO, investors will be able to feel more confident in the industry, and that will be a win-win for advisors and investors."


Granted, most of his members are already in FINRA anyway, so combining their advisory regulation with their broker-dealer regulation would simplify things enormously for them.


But the logic here is client-centric. Can foes of the SRO make a similar case for remaining under the SEC, from the client's point of view?


I'm sure there's one out there. I just haven't heard it lately.




Comments (1)

I can make the case. His is silly.

These groups continue to transpose RIA and advisor. RIA are firms, IARs are individuals. Those FINRA b/d like to attempt to pass off RIAs as people. That is like counting all Registered Reps as broker-dealers.

While the independent broker-dealer's home office is examined regularly, how often does FINRA examine each Office of Supervisory Jurisdiction (OSJ)?The other misleading fact is while there are some 12,000 RIA firms, about 80% of the IARs operate under a broker-dealer affiliate RIA like MSSB, LPL, etc.

Further, the SEC hits most of its RIAs with the same frequency as FINRA, aside from 2008-current, when they cried 'help' from the states/Congress. States data reveal they also operate on a 36 month turnaround.

Pualitz's number are rigged. He takes into account all RIAs whether they are suject to SEC supervision or not, then says the SEC is not examining RIAs. They are not supposed to be examining all RIAs!

AND...they can NEVER answer the S in SRO. How can FINRA, the Self (owned by B/Ds) be an SRO to groups that are not members? ASK THAT QUESTION SCOTT.....BE A JOURNALIST.

OR why do they resist the NASAA from being a regulator?

brentb843 , August 11, 2011

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