In working to represent the independent financial advisory community throughout my career, one thing I've learned is that, while the differences between the registered investment adviser (RIA) model and the independent broker-dealer (IBD) model are certainly real, all of us in this industry benefit when we pull together to represent our common interests in our interactions with regulators.
In fact, although many may not realize it, FSI works every day to represent independent advisers of all types, including those that operate as an RIA, so that we all speak with one voice. Our recent effort to protect advisers and their clients in Minnesota provides a great example.
Minnesota enacted a law in May that required all investment adviser representatives – in other words, IARs who work under an RIA – there to register with the state and to pass either the Series 65 or the Series 66 exam in order to continue to do business in Minnesota. Most states already have some form of registration requirement; advisers typically satisfy these by sitting for the exams early in their careers, before they start to build a practice, then maintaining their registrations on an ongoing basis.
Imagine, though, that you are an established adviser with a large book of clients. Readers who have studied for the Series 65 or the Series 66 know how time-consuming these tests can be. Advisers in this position can't simply stop returning phone calls while they study for a test – their clients' needs aren't going to address themselves.
Fortunately, the Minnesota Department of Commerce's Securities Division, the agency tasked with implementing the law, was very open to our feedback. In our in-person meetings with them, it became clear that they were truly listening to our members' concerns. Furthermore, they did not view the legislation as an opportunity to raise revenue through registration fees; indeed, any such revenue would not have gone into the Department's budget anyway. They simply wanted to develop a better understanding of the IARs operating in the state – a goal our members fully understood and supported – and noted that they were amenable to other ideas on how to achieve this worthwhile goal.
The Department also asked for information from FSI members on their existing IARs in Minnesota, which we were happy to collect and provide.
We and our members pointed out to the regulators that the proposed exam requirement would have adversely affected Minnesota investors by depriving them of crucial financial guidance and had the potential to damage small businesses across the state. Moreover, since many national advisory firms have a footprint in Minnesota, the requirement would have created a burden for businesses all over the country.
Our members helped to reinforce these points by providing individual feedback to FSI in response to a request we sent out in July. We then shared the feedback with the Department.
We suggested that the Department waive the exam requirement for advisers who were employed for a certain number of years, or who had certain qualifications and designations. The state officials appreciated our feedback and implemented the proposed compromise measures within a short timeframe; in fact, they extended the grandfathering provision even further than we suggested by only requiring new IARs who became employed in the state after August 1, 2013 to sit for one of the exams. They also allowed a 90-day grace period from Nov. 1, 2013, to Jan. 31, 2014, in which to fulfill these requirements.
As we have seen time and again, regulatory solutions that may sound good in a vacuum often result in side effects that don't help investors and can harm advisors' businesses, whether they are IARs or whether they are affiliated with an independent broker-dealer.
By standing together, we can further strengthen the voice of our industry, and ensure that regulators and legislators hear – and act – on our concerns as we work to establish a healthier, more business-friendly regulatory environment for advisers to thrive in the future.
Dale E. Brown is president and chief executive of the Financial Services Institute Inc.