Bernie Clark and Skip Schweiss head to Washington next week to fight on behalf of RIAs in Bachus bill showdown

Brooke’s Note: Anyone who thinks that FINRA will waltz in and oversee RIAs apparently has another thing coming. Looking like a dire enough threat to RIAs, the Bachus bill may be looked back on as the hasty overreach by FINRA supporters that led to an unimaginable backlash. Though RIAs have to date been an annoying swarm of gnats to pro-FINRA forces, they have now begun to take on the aspect of a stirred up hornet’s nest. Not only has Ron Rhoades begun unloosing his intellectual firepower but relatively neutral groups like POGO and the GAO are leveling criticisms that won’t be easily dismissed. Now, here is a sign that another sleeping giant or two is being awakened. Bernie Clark and Skip Schweiss are packing their bags for Washington knowing that they carry the hopes of a combined 11,000 RIA firms with a combined $900 billion or more in assets. The two veterans of the RIA business are not known for political barnstorming and activism but I doubt they’ll suffer well any half-baked arguments from Wall Street.

Industry trade groups have been fighting nonstop about Congress’ proposal to create a self-regulatory organization, and now top executives from TD Ameritrade and Schwab are headed to Washington next week to jump headfirst into the fray.

Bernie Clark, executive vice president of Schwab Advisor Services will be in Washington next week and a spokesperson says his schedule of meetings with legislative offices is still being ironed out. See: Schwab takes high-profile stand opposing self-regulatory organization for advisors.

In addition, Skip Schweiss, managing director of advisor advocacy and industry affairs at TD Ameritrade Institutional, and Gil Ott, deputy general counsel for TD Ameritrade Inc., will be meeting Tuesday with the offices of the bill’s co-sponsors, House Financial Services Committee Chairman Spencer Bachus (R. Ala.) and Rep. Carolyn McCarthy (D. N.Y.), and that of Rep. Barney Frank (D-Mass.), the panel’s ranking minority member. The company couldn’t say which staffers Schweiss and Ott would be meeting with next week.

Before Clark and Schweiss leave for Washington, they’re rallying the troops — their advisors — urging them to take action against the proposed bill by sending e-mails to Congress members and even to tweet about their opposition of the bill. Use: #OpposeHR4624.

The timing is important because Bachus’ panel will hold a hearing Wednesday to mull over the proposed Investment Oversight Act of 2012, which would pave the way for the Financial Industry Regulatory Authority Inc. to create and run the SRO. See: Duane Thompson says Bachus bill will croak in Congress but others see danger aplenty.

Other RIA custodians are also talking to politicians as well. When asked about the issue, Fidelity spokesman Steve Austin says:
“Fidelity has been engaged in a dialogue with the industry and policymakers to help determine the best way forward, and ensure that advisors and brokers are regulated effectively.”

This week, the battles have heated up in anticipation of next week’s hearing. One non-profit group, the Project on Government Oversight, was criticai of FINRA, saying the group has conflicts of interest. See: Nonpartisan watchdog group writes a scathing letter about FINRA story. But Financial Services Institute Inc. chairman Joe Russo blasted the SEC, saying the agency wouldn’t be a solid regulator of RIAs for a number of reasons, adding that staff members have been outed for surfing for porn on the internet while at work. See: New FSI chairman isn’t sugarcoating FINRA’s shortcomings but blasts the SEC on porn and BlackBerrys in this letter.

FINRA on the defensive

For its part, FINRA defends itself, saying once again that projections, such as one from the Boston Consulting Group, that say the cost of a FINRA-supervised SRO would be quite pricey are inaccurate. In April, FINRA issued its two-page report complete with numbers saying that startup costs would be much less and just one-tenth of what Boston Consulting Group’s report stated. See: Creating an SRO would cost 100% more than SEC exam program, study shows.

Howard M. Schloss, executive vice president of FINRA, told RIABiz in December that his organization will effectively be able to have oversight of RIAs since it already oversees some of the entities that are hybrids.

In addition, a FINRA spokesperson, via e-mail, says that the Bachus-McCarthy proposal is “an important and thoughtful effort to address a serious gap in investor protection. The bill recognizes the need for regular exams of investment advisors, while rightly focusing on retail accounts.”

FINRA also points out that it is the largest independent regulator for all securities firms in business in the U.S and touches nearly all aspects of the securities business — from registering and educating all industry participants to examining securities firms and writing and enforcing rules.

Rallying the troops

Skip Schweiss: We need to patch
these holes for sure, but we
don’t think adding a layer of
protection is the best way to
do it.

While Clark and Schweiss say investors’ interests are paramount, they both feel there are problems with this bill and have reached out to advisors before leaving for Washington to ensure that advisors’ messages are heard loud and clear.

Clark sent out an e-mail this week to advisors letting them know he’d be in Washington next week.

In it, Clark pointed to studies suggesting that an advisor SRO run by FINRA would be cumbersome and expensive. See: FINRA comes up with cost projections for its SRO and the CFP Board blasts them.

“While we agree that changes are necessary to make sure that investment advisors are examined more frequently, we do not believe the way to get there is by regulating RIAs and broker-dealers as if they were the same,” Clark says. “We believe advisors are best regulated through principles-based regulation.”

Clark urged advisors to e-mail him their thoughts on the proposed bill.

“Send your thoughts to me and I’ll deliver your message,” Clark wrote. “E-mail me and I’ll personally deliver your message to the representatives with whom I’ll be meeting. I also may participate in a few media interviews in D.C,, and they’ll be looking for some good quotes from RIAs. Let me know if I can share yours.”

Tweet out!

Clark also offered numerous ways for advisors to get involved by e-mailing Congress members or sending a tweet. He asked advisors to tweet about the issue on June 7 and include #OpposeHR4624 in the message, and even offered some suggested tweets for advisors.

“You can write something like: 'Regulating RIAs the same as B-Ds will be costly, redundant & isn’t necessary. It’ll stifle independent advisors like me.’”

Schweiss also sent a message to advisors asking them to take a survey about how the SRO bill would impact them. Schweiss will use the results from the survey while meeting with congressional staffers next week to illustrate the direct impact for RIAs.

Letters work, too

Additionally, TD Ameritrade provided a sample letter that advisors can send to members of Congress sharing their view of the SRO bill.

Schweiss says his firm has been watching this debate for some time and while TD agrees that RIAs do need further examinations, it feels that the SEC should be the regulator to do it. See: Most RIAs prefer to pay money for SEC exams now than pay in blood later under an SRO.

“We know investor protections have some holes, and we need to patch these holes for sure, but we don’t think adding a layer of protection is the best way to do it,” he says.

Schweiss says it’s also crucial for advisors to send messages directly to members of Congress as well. See: A big California RIA fires off a letter to Rep. Bachus decrying FINRA as SRO pick.

“We are proud to advocate on issues of import to the advisor community in Washington,” he says. “Together we hope to help our legislators find ways to provide effective investor protection without imposing unreasonable burdens on the registered investment advisor community.”