Regulation can do as much harm as good. Such is the case with the current push to give FINRA the oversight of registered independent advisors. I read with interest in the August, 2012 Investment Advisor magazine a soapbox piece by Steven Weydert, President of Weydert Wealth Management entitled, “Product Verses Process” which read:
“In late April, House Financial Services Chairman Spencer Bachus reintroduced his draft bill calling for a self-regulatory organization for advisors. As Washington Bureau Chief Melanie Waddell wrote in May, FINRA is a lead candidate in assuming the SRO role. As of press time, the fate of the bill was still undecided, but the bill could come up for a vote in July.
“The prospect of falling under FINRA’s oversight has incited loud opposition throughout the advisory industry. Below is one example, submitted by a user on AdvisorOne.com.
The absurdity of suggesting that investment advisors and broker-dealers often provide “indistinguishable services” demonstrates a stunning depth of misunderstanding regarding the two industries.
Brokers manage products; investment advisors manage process. With brokers, process is incidental; with investment advisors, products are incidental. With brokers, it’s pay-and-then-go (on to the next transaction and hidden commission); with investment advisors, it’s pay-as-you-go (100% transparent and invoice only). Equating the two models demonstrates a kind of mind-numbing ignorance that almost makes one wonder why a decent person would try to serve the retail investment space. In the eyes of the law, investment advisors are not much different than brokers. Lumping us together as if we share the same industry is beyond revolting.
Do you know who else finds this revolting? How about Britain? How about The Netherlands? How about India? How about Australia? In these countries, financial advisors are banned from brokering products on commission. It’s flat-out illegal. The idea that an advisor should be allowed to personally profit from his own advice via a transaction-based sale is considered so patently absurd that it’s simply outlawed. Yes, that’s right; the entire broker-dealer business model is banned from the investment advice industry in countries with the common sense to see how vital this is to protect the public and the advice industry from the sales world.
Regardless of whether or not financial advisor are regulated by the FINRA brokerage organization or if brokers and commission-based agents hiding as fee-based (not fee-only) advisors are allowed to continue to profit from their own advice, you should be smart and choose a fee-only advisor. Go to napfa.org to find a NAPFA member in your area.
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