Finra isn't backing down from its position that it has jurisdiction over broker-dealers'
financial planning activities.
Following a letter sent to the Securities and Exchange Commission last week by the Financial Planning Association, The
Financial Industry Regulatory Authority Inc. executive vice president Tom Selman insisted that the self-regulatory organization acted entirely within its power Aug. 6 when it fined Ameritas Investment Corp., a dually registered broker-dealer and investment adviser, and one of its former registered representatives, for advertising and sales violations involving misleading financial plans.
“Ameritas is a case in which clearly, Finra has jurisdiction be-cause Ameritas is a broker-dealer, [the rep] was acting as a broker-dealer, she was selling securities products, and they were all doing this through the broker-dealer business,” he said. “The jurisdiction of Finra is clear.”
In a letter sent to SEC Chairman Mary Schapiro last Monday, the Denver-based FPA urged the SEC to restrict Finra's enforcement power to ensure that Finra does not regulate
financial planning activities.
“Due to Finra's absence of legal authority to regulate broad
financial planning activities, and its inability to impose a fiduciary standard that would enhance investor protection, we believe this task is best carried out by the SEC,” wrote FPA president Richard Salmen, senior vice president of GTrust Financial Partners of Topeka, Kan., which manages $400 million.
APPARENT CONTRADICTION?
Finra's actions in the case involving Lincoln, Neb.-based Ameritas also undermine the self-regulatory organization's long-held position that it didn't also have authority over Bernard L. Madoff's advisory activity, according to the FPA.
“We do not believe Finra can have it both ways, claiming on the one hand that it had no authority over a highly publicized regulatory failure — Madoff — and on the other, clear and unambiguous oversight over the development and marketing of financial plans by an Ameritas broker,” the letter said.
SEC spokesman John Nestor declined to comment on the FPA's letter.
Finra fined Ameritas $100,000 for not supervising a broker who persuaded customers to take on additional mortgage and home equity debt to buy variable universal life insurance policies that were to be used to fund college expenses and retirement. The broker, Nancy Ziering, who formerly worked out of Ameritas' Chatham, N.J., office, was fined $60,000 and suspended for nine months.
Finra is “a product-based regulator that deals with the suitability of investment products for a consumer,” Mr. Salmen said. “We don't believe that they're the appropriate regulator of the financial planning process.”
Both Ameritas spokesman Scott Stuckey and Ms. Ziering's attorney, Michael O'Hara of the Hamilton, N.J., office of international law firm Duane Morris LLP, declined to comment on the matter.
The brouhaha is the latest twist in the battle over who will regulate investment advisory firms and financial planning activities.
Investment advisers, who are regulated by the SEC and state securities regulators, are held to a fiduciary standard that requires them to put their client's interests above their own. Broker-dealers are regulated by Finra under standards that require them to make suitable recommendations to their clients.
The FPA, along with the Washington-based Certified Financial Planner Board of Standards Inc. and the National Association of Professional Financial Advisors of Arlington Heights, Ill., is pushing a plan that would make a so-called professional-review organization responsible for regulating advisers.
BATTLE FOR POWER
Meanwhile, New York and Washington-based Finra wants to take over regulation of investment advisory firms from the SEC, saying it has the resources to supervise both groups.
“Ameritas is an example of why there needs to be an independent regulatory organization involved in both the investment adviser and broker-dealer business,” Mr. Selman said. “Somebody was providing financial plans and recommending securities in a capacity clearly as a broker-dealer that is registered by Finra.”
Not surprisingly, Marilyn Mohrman-Gillis, managing director of public policy for the CFP Board, disagrees.
“Finra stepping into the void underscores the need for [an] oversight board for financial planners,” she said. “There is no entity out there qualified to exercise oversight over financial planning and the provision of financial planning services.”
Many investment advisers agree that Finra went too far in the Ameritas case.
“It's like a cop who's out of their jurisdiction and sees a crime,” said Michael Haubrich, president of Financial Service Group Inc. in Racine, Wis., which manages $100 million. “But at the same time, there's another cop there who's in their jurisdiction; the second cop is there; the SEC is there.”
Still, some disagree.
“Finra is appropriately disciplining a broker who they regulate for actions the broker took,” said Paul Puckett, principal of Beacon Wealth Advisors LLC of Virginia Beach, Va., which manages $10 million. “Finra is responsible for regulating brokers, and they should be.”
E-mail Sara Hansard at [email protected].
