Advisers grapple with regulatory disconnect

The frustration felt by advisers about the growing wave of regulation and failed attempts to influence policy erupted last week at a town-hall-style meeting in Las Vegas.

“It’s like the government is against us,” Robert Braglia, president of American Financial and Tax Strategies Inc., said at the gathering at an adviser conference sponsored by compliance consultant MarketCounsel LLC.

He complained about regulators’ being out of touch and ineffective.

“We have laws on top of laws, but they don’t help the consumer,” said Mr. Braglia, whose firm manages about $75 million.

One problem that advisers must address is that lobbying efforts by registered investment advisers were overwhelmed by the better-organized and more amply funded insurance and brokerage industries, said David Tittsworth, executive director of the Investment Adviser Association.

“The investment advisory industry has done a pathetic job” of telling its story to Congress, Mr. Tittsworth said,

“I’ll take some of the blame for that,” he added.

Robert Kargenian, founder of TABR Capital Management LLC, complained that the insurance industry had successfully lobbied Congress to exempt equity-indexed securities from SEC regulation. in the Dodd-Frank bill.

Whether an equity-indexed annuity is a security or not, “it’s being sold without proper disclosure,” Mr. Kargenian told InvestmentNews.

“We lost the battle on that one,” said Marilyn Mohrman-Gillis, managing director of public policy and communications at the Certified Financial Planner Board of Standards Inc.

Ms. Mohrman-Gillis was one of the panelists at the event, along with Mr. Tittsworth and David Massey, North Carolina’s deputy securities administrator and president of the North American Securities Administrators Association Inc.

The problem with insurance sales goes beyond just EIAs, added Mr. Kargenian, who manages about $165 million for clients.

FACE TO FACE

Mr. Massey said it’s important for examiners to get out and visit firms so they know the practical limits advisers face.

But “that door swings both ways,” he said.

Mr. Massey and the other panelists encouraged advisers to be active in working with regulators to find solutions, and to contact members of Congress to push back against competing interests.

“I totally understand the frustration,” Mr. Tittsworth said.

“But you can either get involved and try to change it or just [complain].”

“Until [elected officials] hear from you, [they’ll just] hear from the lobbyists,” Mr. Massey said.

Brian Hamburger, MarketCounsel’s founder, said he wanted some sparks to fly at the meeting.

As for the level of passion among advisers, Mr. Hamburger wasn’t surprised.

“There doesn’t seem to be a real understanding of the challenges faced by [advisers]” among regulators and Congress, he said.

He pointed to the rollout of the new ADV Part II form after years of delay.

“It seems regulators have been sitting on their duffs for 10 years, and then we get Dodd-Frank and the new ADV at the same time,” Mr. Hamburger said.

NEW BATTLES AHEAD

The representatives from adviser groups said they’re not done fighting.

Ms. Mohrman-Gillis said she expects the SEC to propose and put out for comment a fiduciary standard sometime next year.

The CFP Board and the Coalition for Financial Planning will urge that the business practices of broker-dealers conform to the fiduciary standard, not the other way around.

“The hard work will be how, not whether, that fiduciary standard will be applied,” she said.

Meanwhile, “the likelihood of Finra being the [adviser] self-regulatory organization is greater than it’s ever been,” Mr. Tittsworth said.

“If we get legislation [to create an adviser SRO], we’re fighting” it, he said.

Advisers worry that the Financial Industry Regulatory Authority Inc. will enforce prescriptive broker-dealer-like rules on them.

“Our members say they’d rather pay the SEC directly — that’s a fairly prevalent attitude,” Mr. Tittsworth said.

E-mail Dan Jamieson at [email protected].