Small firms hustle for Finra board slot

Potential candidates for open seats battle voter apathy ahead of next month's annual meeting

Jun 19, 2014 @ 12:01 am

By Mark Schoeff Jr.

Financial Industry Regulatory Authority Inc. members trying to qualify to run for a small-firm seat on the broker-dealer self-regulator's board face the same obstacle that often vexes candidates for public office — voter apathy.

The first hurdle for the handful of hopefuls is to get 114 signatures on their petitions by Friday from Finra executive representatives at small firms.

If they reach that threshold, they are a candidate for the election slated for the Aug. 6 annual meeting of Finra firms. At that time, one small-firm governor and one large-firm governor will be chosen for the 24-member Finra board.

“A lot of small firms feel they're too stretched and say, 'Oh, someone else will vote,'” said Carrie Wisniewski, president of Bridge Capital Associates, who is gathering signatures. “But if they don't vote, their voice won't be heard.”

The Finra board includes three small-firm members. Another three members are large-firm governors and one is a mid-size firm governor. A small firm is defined as one with fewer than 140 Finra-registered staff. Midsize encompasses 151 to 149 registered persons, while large firms have more than 500.

The Finra nominating committee has nominated Gregory J. Fleming, president of Morgan Stanley Wealth Management and Morgan Stanley Investment Management, for the large-firm seat. The panel did not nominate anyone for the small-firm position.

Karen Fischer, chief compliance officer at BG Strategic Advisors, is also hustling for signatures.

“This is not one of the issues they want to deal with,” Ms. Fischer said, referring to small firm representatives signing petitions. “They have too much on their plate.”

Another prospective candidate, Stephen Kohn, president and chief executive of Stephen A. Kohn & Associates Ltd., said that the problem is not apathy but rather hesitancy among small firms to participate in governance at the self-regulatory organization.

“They're afraid to get involved and get their name out there on anything that has to do with Finra,” Mr. Kohn said. “They don't want to be a target. When some broker-dealers hear the name 'Finra,' they dive under their desks. They want to be as anonymous as possible.”

A Finra spokeswoman declined to comment.

The only way to break through is by personal contact with firms' Finra representatives, said Patty Bartholomew, managing partner and general counsel at Craig-Hallum Capital Group.

“It takes a lot of work,” Ms. Bartholomew said. “You have to reach out to a lot of people who don't know you. It's got to be individual touches.”

Small firms dominate Finra membership, comprising 3,781 out of the 4,142 Finra firms. Although they have numbers, they don't necessarily have strength, according to the people vying to become candidates for the board.

“The small firms are being beaten to death financially with out-of-control fees and fee increases,” Mr. Kohn said. “Every time Finra needs money, they level some kind of fee on small firms.”

The difficulties facing small firms also is a plank in Ms. Fischer's platform.

“My major issue is to make being compliant more bearable,” Ms. Fischer said. “One size doesn't fit all. There have to be other ways of being compliant than the way Finra has laid it out in the rule book.”

The latest worry for small firms is Finra's proposal to ramp up the collection of account information from member firms in order to better spot potential investor harm in sales. The idea, known as the Comprehensive Automated Risk Data System, could become a formal rule proposal later this year.

Ms. Wisniewski worries that even though her investment-banking firm doesn't have customer data in the traditional sense, she'll still have to file forms to comply with CARDS.

“I'm going to have to hire an IT professional to a build a system for me to push data to Finra,” Ms. Wisniewski said. “It's incredibly expensive and it's irrelevant for some firms.”

Ms. Bartholomew asserts that CARDS “will have a significant impact on small firms.” That's one reason why the voice of small firms is important on the Finra board, she said.

“Firm owners are in the best position to discuss how proposed rules will affect small firms,” Ms. Bartholomew said.

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