Finra denies WSJ report that regulator has underperforming portfolio

Regulator says Journal's analysis makes improper comparison of returns

Oct 6, 2017 @ 1:33 pm

By InvestmentNews

A spokeswoman for the Financial Industry Regulatory Authority denies that its investment portfolio has underperformed relevant benchmarks, as a recent Wall Street Journal article asserts.

"The portfolio has exceeded Finra's benchmark on a risk-adjusted basis," spokeswoman Nancy Condon told InvestmentNews today in response to the Journal report.

"In 2009, after the financial crisis, Finra decided to reallocate its assets to pursue a more conservative approach, with the majority of the portfolio invested in fixed income securities. Instead of comparing Finra's returns against a similar asset mix, the Journal's analysis compares Finra's returns to a much more aggressive asset mix of 50% equities and 50% fixed income securities. That is a flawed comparison."

From Finra's origins in 2004 through 2016, the Financial Industry Regulatory Authority's actively managed $1.6 billion investment portfolio has returned 3.4%, or $440 million less than a 6% return had the self-regulator invested in a balanced mix of global stocks and U.S. bonds, according to Wall Street Journal calculations of figures in Finra's annual reports.

The returns have bottom-line ramifications for the brokerage industry, the Journal reports, noting that higher portfolio returns could have translated into lower costs for Finra's 3,800 member firms, which support the organization's $1 billion budget.

(More: Finra: Who's watching the watchdog?)

When Finra's revenue from fees, fines and investment returns exceeds forecasts, the regulator may rebate fees to the member firms it regulates. The regulator has not rebated such fees since 2014. Instead, since opening its portfolio, Finra has increased certain fees, partly because revenue has come under pressure as its membership declined from 4,600 firms in 2010.

Finra's managed portfolio — which the Journal said is unusual for regulators, since such entities normally invest in short-term securities — goes back to money received in 2001 after the National Association of Securities Dealers, the previous incarnation of the regulator, unloaded its stake in Nasdaq.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Regional brokerages are picking up assets, advisers from wirehouses

Senior columnist Bruce Kelly discusses with deputy editor Bob Hordt the impact of big brokerage houses pulling back on recruiting and regionals promising recruits less bureaucracy.

Latest news & opinion

With stock market in a correction, is a recession just ahead?

Some say the market is overreacting to bad news — but what if it's not?

10 tips for hiring top young advisers

Hiring is not easy and retaining good employees can be even more difficult. Here's a roadmap for bringing on new advisers and training them — and even firing them, if necessary.

Wells Fargo Advisors 2019 comp plan sees little change

But lowest-producing advisers face a pinch in pay.

8 adviser fears for 2019

Interest rates, trade wars and bear markets, oh my! Looking across the industry, here are some of the biggest concerns heading into the new year.

3 big reasons to do a Roth conversion right now

The time is ripe for many to convert a pretax IRA to a Roth.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print