Why Harold Evensky believes that a FINRA-as-devil attitude is counterproductive

Brooke’s Note: Fiduciary advocates won a great legislative victory last month. It all but assures that more advisors will be subject to a higher fiduciary standard. But rules are only as good as the referee that enforces them. Some people believe that many of the gains achieved by Barney Frank in Congress will be squandered if FINRA gets the nod. In general, the brokerage industry favors FINRA and RIAs favor the SEC. Harold Evensky, however, is an RIA — and a serious fiduciary advocate — who believes that FINRA is okay. The president of Florida-based Evensky & Katz, a fee-only investment advisory firm serves on the steering member of the Committee for the Fiduciary Standard. That he holds this view is unusual and his reasoning is interesting food for thought. Here is what he has to say in response to: Why advisors see FINRA as the devil Even a FINRA skeptic like Ron Rhoades can respect what Harold has to say. See Ron’s comment at the bottom of this article.

A “Holier-then-thou” splitting of the investment world into “good guys” and “bad guys” is not only unfair, it is counter productive.

If we focus less on protecting our turf and more on what will best serve the interest of the investing public and recognize that most advisors, whatever their employment or compensation structure, care about their clients’ best interest, the public will be well served.

How? Congress is likely to finalize a bill that ultimately requires anyone providing personal advice being held to a principles-based fiduciary standard. The ultimate regulator of that duty is likely to be FINRA.

As a consequence, in order for the final outcome to resemble a world in which all advisors are held to a substantive fiduciary duty, the SEC will have to enact substantive principles-based standards and the regulator (e.g., FINRA) will have to honestly and aggressively enforce those standards.

As a consequence we (i.e., those of us currently in the RIA world) have two options; #1 – continue to scoff at the SEC’s motives and call FINRA the devil or #2 – work, to whatever extent we can, with the SEC and a future fiduciary regulator to educate them regarding the unique nature of principals based advice and support their efforts. See :Why advisors see FINRA as the devil

Visceral high

Although Option #1 may provide a temporary visceral high, it is counterproductive and unprofessional and will result in our voices being ignored.

If you believe, as I do, that advisors across the spectrum of employment and compensation structures believe in placing their clients’ interest first, Option #2 offers hope.

I know I’m an optimist; however, after numerous meetings with SEC Commissioners, staff and FINRA staff, I’ve come to believe that both organizations not only understand the differences between rules and principles-based standards, they believe in substantive fiduciary principals and strongly support the application of principles-based standards for those providing financial advice.

Their quandary is not how to work around principles but rather how to make principles-based standards work in the real world. Professionals from the current RIA world can be of the greatest help by working with the SEC and future regulators to assist in developing and implementing realistic standards.