Aug. 4, 2018
Within the context of this new proposed rule, it is interesting to note that EFHutton invented the retail "wrap fee" structure in 1985. The effort to stabilize client relationships and formally promote shared responsibility for account goals, risk and performance was well documented in the required "Investment Policy Guideline Statement" that was always part of the account opening process. The Guideline Statement was a normal part of the quarterly client in-person review and served as the benchmark for all account activity.
Today, most firms on the wire house/broker/dealer side of the business experience the bulk of their retail revenue from such accounts. The distinction between an RIA "only" and a rep at a wire house whose business is mostly managed accounts is nil.
If we accept this - I am confused on several fronts.
First, perhaps someone can actually expose the regulatory weakness that exists today. Where and what can a broker or RIA do that damages a retail client that is not already covered in a myriad of ways in existing regulations?
Second, why the distinction between RIA's and brokers? Is there some magic between a broker being on the receiving end of a 1% "turn on assets' in a commission-able account and the RIA charging a fee of the same amount on his managed accounts? Does the planning in one situation really mark a significant difference to the other? Especially when the brokers book of business is 50% or greater in managed accounts with a fee basis of compensation?
Does a broker switch hats when dealing with a client when that client invests in a laddered bond portfolio with commissions as part of their overall plan while investing other funds in a managed third party manager account?
Pardon me, but in the end, the DOL "Fiduciary Rule" and now the new SEC proposal both appear to be searching for an answer to an issue that is non-existent?
Both brokers and RIA's already do the bulk of their business in exactly the manner the new rule requires. If that is happening, why is the SEC saddling the industry with one more regulation requiring one more set set of compliance paperwork requiring staff to supervise behavior that is already in place and in practice??
What is the cost to productivity to simply prove to a regulator we are already doing what this new rule will require us to prove? How many productive hours will be lost across the USA by advisors, their firmns and their clients providing paperwork, classes, b/d and RIA compliance officers making new demands on time and effort.
To our friends at the SEC - please, before you enact one more set of rules - please go back and again, review what is already on the books. If needed - expand existing rules - do not use newly promulgated rules to do as I have said before - regulate activity and behavior which has already been in place formally since 1985.
In the end, a rep of either type that doesn't act in his clients best interest loses the most valuable of items - the client. The amount of effort that goes into obtaining and growing relationships is so significant that no one can afford to not work in a clients best interest.
And for those reps that don't - there are already rules on the books that only need application to remove them in the first place from the business.
Thank you for allowing me to weigh in on this issue. i have been in the business for 40 years this year and have been a part of and witnessed the changes i speak of above. Thank you for your consideration of my comments and point of view.
Mark Generales
Southern Trust Financial Planning