Financial advisers see “Finra” plastered across SEC Chairman Mary Schapiro's forehead, and it makes them nervous.
Having been appointed to head the Securities and Exchange Commission last year after serving as chairman and chief executive of the Financial Industry Regulatory Authority Inc., Ms. Schapiro next year is expected to push Congress to expand the authority of the brokerage industry's self-regulatory body to include financial advisers.
”She came from the brokerage side of the industry, and her agenda is based on where she has been,” said Bill Baldwin, chairman of the National Association of Personal Financial Advisors.
The part of that agenda most difficult for advisers to accept is Ms. Schapiro's strong stand in favor of creating a new fiduciary standard that would apply both to brokers and advisers. Advisers' fear is that a new “harmonized” standard would carve away the “client comes first” standard imposed by the Investment Advisers Act of 1940.
In a speech Dec. 3 at the Consumer Federation of America's annual financial services conference, Ms. Schapiro said brokers and advisers should adhere to identical obligations concerning licensing, disclosure, continuing education and record keeping.
“Securities professionals, regardless of what their business card says, should be subject to the same standard of conduct, the same licensing and qualification requirements, the same disclosure obligations, the same regulatory and record-keeping standards, and a robust examination and oversight schedule,” Ms. Schapiro said.
Left unspoken was the assumption that the SEC would be the agency writing the new rules.
That, in turn, would mean greater regulatory oversight for advisers and, perhaps, even their inclusion under Finra's umbrella, with the attendant inspection and membership fees.
“She would like financial advisers to be regulated by Finra, and for the fiduciary standards to be weakened so that they can apply to the brokerage industry,” Mr. Baldwin said.
Ms. Schapiro also wants more money for the SEC, which she has said is underfunded and understaffed, a situation that contributed to the agency's failure to detect the massive Ponzi scheme perpetrated by Bernard Madoff.
On the other hand, she came down on advisers' side by signaling acceptance of a provision in the regulatory-reform bills that would raise the asset threshold for SEC oversight of registered investment advisers to $100 million, from $25 million.
While not even her fans are eager to speak publicly about the high-profile regulator, there is no shortage of expectations.
”There are thousands of challenges ahead of her, including congressional pressure and a lack of resources, but she has to look forward, and not backward,” said former SEC Chairman Arthur Levitt, who includes a review of the proxy-voting process and the defense of established accounting standards on his list of matters the SEC needs to address.
“She's very well-qualified to look at the issue of fiduciary standards and how that compares with the suitability standards used in broker-dealers, but I don't think brokerage firms are ready yet to take on the whole fiduciary standard,” said David Pottruck, co-chairman of HighTower Advisors LLC.
“I think people need to recognize that Mary Schapiro is probably the best-qualified person we've ever had running the SEC,” added Mr. Pottruck, former chief executive of The
Charles Schwab Corp.
“We need a very thoughtful person right now in that role who really understands both theory and practicality, because investors need to have confidence that the SEC plays an oversight role.”
