by Cynthia Harrington
Atlanta — The independent broker/dealer community is organizing.
The Financial Services Institute, which was launched in January, was formed to speak for the industry to regulators, create standards and consistency for members, and represent the value of the group to the public.
Tony Batman, CFP, CPA, CFA, is chair of the inaugural board of directors for the FSI, which is headquartered here. “I adamantly believe that the independent broker/dealer is the most viable way for Americans to get help to meet their financial goals,” said Batman, who also serves as chairman and chief executive of Dallas-based 1st Global. “And our industry is being unfairly demonized by the regulators and the media because of the predatory, unprofessional and illegal activities of a few financial services representatives.”
Advocacy tops the task list for the new entity. The FSI is focusing on 20 definable proposals of concern to the group, issued by the National Association of Securities Dealers, the Securities and Exchange Commission and various state regulators.
Batman said that the group would focus on issues, but also on trying to understand the regulatory forces making policy. “For instance, despite the fact that 24 percent of the registered reps in the country affiliate with independents, only one of the 30 directors of the NASD represents the independent broker/dealer,” Batman said. “We want to address both these macroscopic issues and the individual policy issues.”
The need to come together is driven by the flood of regulatory action.
“This new organization is driven by the fact that the independent contract business is fractured,” said Roger Ochs, JD, MBA, CFP, an FSI member and president of broker/dealer H.D. Vest, of Irving, Texas, that serves the CPA advisor community. “While we all have similar issues, there’s no segregation or consistency by location. The FSI gives us the chance to consolidate our message to navigate this regulatory perfect storm.”
The new organization works two ways with the regulatory issues. For one, it helps members to understand the regulations and to comply. “Breakpoints is a hot topic for everybody,” Ochs said. “Secondly, we’re trying to look at the share classes and how to educate clients on these
issues.”
The FSI also informs regulators about the unique needs of the independent broker/dealer, and encourages members to contact regulators directly. “We talk with regulators about how business is actually conducted in the field,” said Ochs. “They need to hear how we supervise 6,000 reps in the field, for instance, not just how the big wirehouses do business.”
Three issues currently open for comment are proposed amendments to the definition of “branch office;” amendments to compensation, fees and expenses in real estate investment trusts, direct participation programs and closed-end funds; and new rules that would require broker/dealers to appoint a chief compliance officer, and the annual certification by the chief executive and chief compliance officer of a firm’s compliance procedures. The FSI provides links to the proposals, as well as instructions on how to comment on their Web site, at
“As we speak with the registered reps, we’re finding total alignment with the organization’s mission,” said Batman. “They’re asking how they can help. They can go to regulators as well with the model form letters and talking points that we provide.”
Additionally, a bill moving through Congress takes aim at 12-b1 fees, and regulators are seeking to narrow the audience for variable annuities. “It seems that regulators are saying that the only suitable option for the client is the cheapest option,” said Dale E. Brown, CAE, executive director and chief executive of the FSI. “They don’t seem to consider that the client might find value in more costly alternatives, or how the client might choose to pay for their financial advice.”
Brown took over as executive director of the new organization from a similar spot at the Financial Planning Association. Brown was associate executive director of the FPA with responsibility for the FPA’s broker/dealer and corporate members. The FPA maintained the broker/dealer division that survived the merger of the International Association of Financial Planning and the Institute of Certified Financial Planners. The broker/dealer committee formed in the 1990s around the Internal Revenue Service challenge to the independent contractor status of reps. “This is a startup with a 20-year history,” said Brown. “It’s akin to trying to climb on a horse at full gallop.”
The institute started with a steering committee meeting of broker/dealer CEOs in August 2003. Broker/dealers struggled to keep up with the new rules and proposals, and felt that they really needed another association out there speaking for their interests. “The FPA is a strong advocate, but their primary member is the financial planning practitioner,” said Brown. “If there were any conflicts between the practitioner and the broker/dealer, that organization favored the practitioner.”
Brown also pointed out that the FPA carries a full agenda. The FPA is relatively new. Formed in January 2000 from the merger of the IAFP and the ICFP, the FPA’s major role was to get its name out and to represent the community of financial planners. “The last thing they needed on top of that was to walk into the SEC with some narrow issue of interest to their broker/dealer members,” said Brown.
In addition to advocating with regulators, the FSI stands to improve the industry by developing best practices and standards, and communicating the improvements to the public. “Even though we compete with each other, in the long run if we work together we can make the whole pie bigger,” said Ochs.
According to Ochs, members will share marketing and sales training strategies to achieve this goal. “If we have a more educated independent contract force in general, we’ll generally do a better job with clients,” he said. “That gives us a positive image, and we expect more reps will want to leave wirehouses and come work with independents.”
Brown describes 2004 as a transition year for the FSI. Following the advocacy efforts on his agenda are new member recruiting campaigns and soliciting sponsors. “There are lots of companies out there with a vested interest in the continued health and success of independent broker/dealers,” he said.
