Regulation And Legislation

Take 5: Tom Giachetti brings humor, insight to regulatory guidance

The regulatory attorney and chairman of the Securities Practice Group gave a typically candid speech about SEC exams at the Raymond James Wealth Managers Conference.

If in some alternate universe there were ever a comedy club for financial regulatory wonks, Tom Giachetti could headline the show seven nights a week.

Most of his presentations, of which there are many, begin with him warning the audience that his language can get “salty,” which is followed in perfect tempo with the confession that if you are offended by his language, “I don’t give a [bleep].”

The seasoned regulatory attorney, author and candid commentator, is chairman of the Securities Practice Group, which he says is dedicated first and foremost to helping financial advisers get through an exam by the Securities and Exchange Commission.

“I care about one thing, and that’s getting you through an exam; the rest of it is crap,” he told an audience of advisers Monday in Boca Raton, Fla., where he was speaking as part of the Raymond James Wealth Managers Conference.

(More: SEC Chairman Jay Clayton doesn’t intend to pursue third-party RIA exams.)

While there are mountains of lawyers working to help guide financial advisers through the increasingly complex regulatory framework, few do it with the expressive and public frankness of Mr. Giachetti. Pulling punches is never an option, especially when his target is a regulatory body.

In addition to warning audiences about his salty language, he also invites any regulators in attendance to have a seat up front, “because you might learn something.” He has no patience for industry jargon, especially when it comes to communicating with clients.

“There’s no such thing as assets under advisement, so get rid of that term,” he said. On back-tested performance, he said, “Stop using these sexy stupid things. Just talk to your clients.”

We caught up with Mr. Giachetti as he was fresh off the stage in Boca and hankering for a bourbon.

InvestmentNews: Why do you think the SEC so aggressively pursues registered investment advisers?

Tom Giachetti: Because they don’t value the expertise that an investment adviser brings to his clients. They look at robo-advisers and Vanguard, and don’t understand why an investment adviser charges a multiple of that to provide advisory services.

What they don’t appreciate is, what an investment adviser does. He or she sells discipline; making sure clients don’t make stupid mistakes.

It is a disgrace that the SEC is looking at portfolios and turnover and making a determination based upon that, that an adviser is not fulfilling his or her obligation, and/or are worth his or her advisory fee.

That is not the purview of the government.

IN: What is the best way to get through an SEC audit?

TG: Hire me. (He chuckles) It’s true. Go through an exam. Make sure you understand how to answer every single question. Then hire me.

IN: What is the biggest mistake an adviser can make regarding SEC oversight.

TG: They didn’t hire me. (More chuckles) No, no, no. I’m kidding. The biggest mistake would be drinking the Kool-Aid. By that I mean, thinking that the SEC is only concerned about Johnny and Suzie’s transactions, and best execution, and not understanding the issues that they’re looking at. They are getting into the weeds, because they don’t want to leave your office unless they can find some way for you to write a check to somebody.

IN: What are the best and worst parts of the Department of Labor’s fiduciary rule?

TG: The best part is it’s been postponed to July 2019. The worst part is, the knuckleheads who devised it, who have no clue about the industries that they’re regulating.

(More: DOL fiduciary rule: Challenges for RIAs under the BICE.)

IN: What’s wrong with financial advisers using social media as a marketing strategy?

TG: Well, nothing except what’s crazy to me is that firms will hire marketing consultants, most of whom haven’t got a clue about the business. And they will spend an exorbitant amount of money on a marketing campaign, but they won’t spend an hour to pay me to review the proposed material to make sure that they can actually use this stuff. They are being guided by marketing consultants thinking that social media is the be all and end all. I promise you, that if you add up all the people who actually look for an investment adviser on Facebook, they’d have a $1.98 to their name.