Fiduciary standard not happening until mid-2012: Ketchum

Finra boss says regulator will have to build new staff, create a separate board – if it's chosen as advisory biz SRO

Feb 1, 2011 @ 12:10 pm

By Bruce Kelly

Richard Ketchum (Photo: Bloomberg)
+ Zoom
Richard Ketchum (Photo: Bloomberg)

Registered representatives will operate under a fiduciary standard no earlier than the latter half of 2012, according to Richard Ketchum, chief executive of the Financial Industry Regulatory Authority Inc.

And that timeline is “quite aggressive,” he said. “If it occurs, the SEC would have to move through an implementation phase that would register one or more [self-regulatory organizations]. That process would take a period of time.”

On Jan. 21, the SEC released a report that calls for brokers and advisers to be held to a uniform fiduciary standard. The SEC also has proposed ways of strengthening the regulation of financial advisers, one of which is to designate Finra as the SRO for some investment advisers.

If that occurs, Finra will have to build a new staff to oversee investment advisers, Mr. Ketchum said.

“We would have to create a discrete board that would have responsibility for investment adviser issues, fill that board, staff up with people who are knowledgeable and understanding of investment adviser issues,” he said. “It would be difficult to imagine all that [happening] before the middle of 2012 or the latter parts of 2012.”

Mr. Ketchum made his comments Monday night after addressing more than 500 brokerage industry professionals in Phoenix at the annual meeting of the Financial Services Institute.

Right now, when reps sell securities to clients, they must make sure the investment is suitable for a client. According to the SEC, the broker must consider a client's risk tolerance, other security holdings, financial situation, including income and net worth, financial needs and investment objectives.

Investment advisers already sell investment products under the fiduciary standard, meaning that they must operate in the best interests of their clients.

Some investment advisers have questioned Finra's ability to regulate their profession. A common criticism from broker-dealer executives is that Finra's staff lacks professionals with experience in the brokerage industry and relies on lawyers with little experience working for broker-dealers.

Mr. Ketchum acknowledges that criticism.

“We would be looking for very senior people as well as building a coterie of investment adviser oversight and responsible folks in the examination team that had experience in investment advisory firms, operating from a legal standpoint of advising investment advisers or compliance consultants,” he said.

Mr. Ketchum said he does not have a sense how of much a change to a fiduciary standard would cost an individual broker or registered rep, either in dollars or work hours. “There are too many ifs to come up with the answer” at the moment, he said.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

Pershing's Dolly: 3 challenges facing advisers ahead

What are the biggest challenges facing financial advisers today? Pershing Lisa Dolly explains some of the hurdles, and how great advisers are overcoming them.

Video Spotlight

Will It Last As Long As Your Clients Do?

Sponsored by Prudential

Video Spotlight

The Catalyst

Sponsored by Pershing

Latest news & opinion

10 funds with largest 3-year outflows

Even well-managed funds that have beaten the S&P 500’s 10.1% average annual gain have watched investors flee.

Wirehouse training programs are back

At one time, major brokerage houses ran large, expensive training programs for thousands of young brokers, and now it looks as if they are about to return to that model.

New military pension rules need financial advisers to step up and serve

Matching defined contribution plan expected to see more money, more need for sound advice.

Brian Block's $4 million bonus was tied to a key metric at ARCP

Prosecution rests case in fraud trial against CFO of American Realty Capital Properties.

Edward Jones is winning the Google search war

Brokerage firm's digital marketing investment helps land it at the top of local and overall search engine results, report finds.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print