This month the Financial Industry Regulatory Authority Inc. told the Securities and Exchange Commission it was raising fees on its 3,300 broker-dealer members, with a small bump starting next year, growing over time and reaching roughly 5 percent on a compound annual basis by 2029.
In its SEC filings, Finra, headed by CEO Robert Cook, made clear that it telegraphed the fee increase for some time.
And the organization claims it was required to make the increase. Costs for qualified staff and technology, necessary to keep with the ever-changing world of the securities industry, keep going up.
If the self-regulatory organization were not to increase broker-dealer fees, by 2027 Finra would deplete reserves substantially, falling “below its board-approved target level of one-year of operating costs.”
That would be a dangerous outcome for any operation, particularly one that has substantial role in the oversight of the retail financial advice industry like Finra.
Along with broker-dealers, the organization also regulates the 628,000 licensed registered reps in this country, about half of which actually sell securities to customers, while the other half work in administrative or executive positions.
But Finra, like so many bureaucracies, has a tin ear.
A substantial number of executives in the organization have failed for years to recognize the resentment many in the securities industry have for Finra, particularly when it comes to pay.
As InvestmentNews has reported at various times over the past decade, the average annual compensation for a Finra employee in many instances outstrips that of a financial services worker or financial advisor.
The total compensation and benefits for the 4,300 employees at Finra in 2023 was on average $233,500 per worker, according to the self-regulatory organization's annual report.
That's an increase of 4.7 percent when compared to a year earlier, when 3,900 employees saw, again on average, $223,000 per employee in compensation and benefits.
In contrast, the US Bureau of Labor Statistics counts 272,190 personal financial advisors, with a mean wage as of May 2023 of $150,670, with total compensation a broader term than a wage because it includes other benefits.
Still, in a comparison that is not apples to apples, the average total compensation of a Finra employee in 2023 was more than one-third greater than the mean wage of a financial advisor.
That’s one reason why a Finra fee increase looks like a bad idea on the surface.
And there are political implications as well.
In this month’s election, one political party, the Democrats, got tossed on their ear, in large part, because the price of eggs was too damn high. Now, Finra is raising prices on its broker-dealers, which are required to belong to the organization.
Add in the incoming Trump administration’s dislike for the status quo, and the next several years could be, to say the least, trying for Finra, its mission and staff.
Project 2025, published by a long-running foe of Finra, the Heritage Foundation, calls for doing away with the self-regulator.
Financial regulators, particularly the Securities and Exchange Commission and Finra “are poorly managed and organized,” Project 2025's playbook reads. “With regulatory authority delegated by the government, both the Public Company Accounting Oversight Board and Finra have proved to be ineffective, costly, opaque, and largely impervious to reform.”
“To reduce costs and improve transparency, due process, congressional oversight, and responsiveness, PCAOB and Finra should be abolished, and their regulatory functions should be merged into the SEC,” Project 2025 concludes.
A Finra spokesperson declined to comment beyond the public information available in the organization’s disclosure about the fee increase.
Finra is an incumbent of an institution. In 2007, the NASD and NYSE Regulation, Enforcement and Arbitration combined to form Finra. The NASD was formed in 1939, making Finra 85 years old.
The incoming administration of President Donald J. Trump could very well be unkind to such incumbents. That’s why Finra raising fees this month reveals its hard of hearing legacy.
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