Finra small-firm board candidates unload on SRO

Attack executive salaries, fee increases and call for budget cuts

Aug 9, 2012 @ 12:49 pm

By Dan Jamieson

As the Finra board election campaign nears a conclusion, three candidates for an open small-firm seat are making issues of Finra's weak financial condition, its executive salaries, a recent fee increase and efforts to get jurisdiction over investment advisers.

Candidates will be soliciting votes until the Financial Industry Regulatory Authority Inc.'s annual meeting Monday, when final tallies will be counted.

The winner will fill one of three Finra board seats reserved for firms with no more than 150 registered persons. Finra's 21-person board has seven elected industry representatives.

The three small-firm candidates, Kevin Carreno, part owner and general counsel of International Assets Advisory LLC in Orlando, Fla., Stephen Kohn, president of Stephen A. Kohn & Associates Ltd. in Lakewood, Colo., and Dock David Treece, a partner at Toledo, Ohio-based Treece Financial Services Corp., agree that Finra needs to get its fiscal house in order.

Finra lost $84 million last year, and then imposed "the biggest fee increase in history. I couldn't run my business that way," said Mr. Carreno, who wants member firms to have a say on Finra's executive compensation.

Mr. Treece thinks pay should be benchmarked against that of government regulators, not private industry. "I don't know any other organizations that pay bonuses when a company loses money," he said, noting that incentive pay is a major component of Finra executives' compensation.

Mr. Kohn also took issue with Finra salaries. "If membership is down 20%, why aren't expenses down 20%, including salaries?" Mr. Kohn asked. "Why are bonuses being paid?"

"Cutting expenses is looking at everything," he said. "You can't just look at one [budget] item. It all has to be looked at very carefully."

Exams are too long and costly for small firms, Mr. Treece said.

"A big expense is examining all these small firms," he said. "They should scale that back."

Mr. Kohn is worried that a new fee for getting business expansions approved by Finra will make the process more arduous.

"Every time I turn around, I'm writing a check for something," he said.

Mr. Carreno complained that the fee increases, which began going into effect last month, got a "rubber stamp" from the SEC. Fee hikes "ought to be approved by members," he said.

Only Mr. Kohn supports Finra's taking on some oversight of advisers.

Setting up a new self-regulatory organization would be too costly, and the SEC is not in a position to take on more adviser exams, he said.

Overseeing advisers would be a "disaster” for Finra, Mr. Carreno said. “Congress should authorize and fund a competing SRO."

"The perception I get is the [Finra] board seems to think [a bill setting up Finra as an adviser SRO is] going to skate on by," Mr. Treece said. The proposal has garnered more opposition than anticipated.

Finra spokeswoman Nancy Condon declined to comment.

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