Editorial

Who's Finra protecting, anyway?

If Finra isn't going to live up to its self-professed mission to protect investors, then the SEC should.

Aug 3, 2014 @ 12:01 am

+ Zoom

Once again, the Financial Industry Regulatory Authority Inc. has shown that it is more beholden to the industry it regulates than to the investing public it purports to protect.

The latest proof is Finra's recent request to the Securities and Exchange Commission to delay implementing a proposed rule that would make the pricing of nontraded real estate investment trusts more transparent to investors. Finra had originally recommended the rule take effect six months after the SEC signs off on it. In a letter dated July 11, Finra asked that it not take effect for 18 months after SEC approval.

There's no good reason we can think of for this request. In its letter to the SEC, a Finra attorney asked for more time so broker-dealers who sell nontraded REITs could adjust to the changes.

That might seem understandable — except that Finra proposed this rule nearly three years ago, in September 2011. The industry has had plenty of time to consider these changes and how they will affect business.

The proposed rule change is a good one. It would do away with broker-dealers' current practice of listing the value of nontraded REIT shares on customer account statements at $10 a share for up to 18 months after the sponsor stops raising funds, even though the value of shares from the start is closer to $8.80 a share after commissions and other fees are taken into account.

The broker-dealer and REIT industries believe the rule could initially curtail the sales of nontraded REITs. That's significant, given that $20 billion of nontraded REITs were sold last year, with a similar amount expected to be sold this year. Nontraded REITs are also a high-commission product, which means brokers aren't looking forward to anything that might crimp sales.

But that isn't a good reason to delay this pro-investor rule. If Finra's request is granted and the SEC approves it this month, the earliest the rule would take effect would be February 2016, almost five years after the rule was first proposed.

That's just too long. If Finra is not going to live up to its self-professed mission to protect investors, then the SEC should. Under no circumstances should it acquiesce to Finra's request to push back this rule's implementation.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

AXA's Christine Nigro: How to handle being the only woman in the room

Women face unique challenges as they move into the C-suite, and they need to remember to always be themselves and let their professional strengths shine, according to Christine Nigro, vice chairman at AXA Advisors.

Video Spotlight

Will It Last As Long As Your Clients Do?

Sponsored by Prudential

Video Spotlight

The Catalyst

Sponsored by Pershing

Latest news & opinion

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.

Voya's win in 401(k) fee suit involving Financial Engines bodes well for other record keepers

Fidelity, Aon Hewitt and Xerox HR Solutions are currently defending against similar fiduciary-breach claims.

Collective investment trusts getting more attention from 401(k) advisers

The funds are catching on due largely to lower costs and more product availability, but come with some inherent drawbacks.

Vanguard rides robo-advice wave to $65B in assets

Personal Advisor Services, four times the size of its closest competitor, combines digital and human touch.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print