Republicans in Congress Trying to Kill Small (advisory) Businesses

Here he is:

Spencer Bachus (from









This is the guy trying to kill small advisory firms. He wants to create a SRO (self regulatory organization) for investment advisors. And he prefers that it be FINRA. What is FINRA besides the non-profit (haha) regulatory organization that paid $33 million in bonuses and payouts in 2008 (the year they lost ~$700 MILLION!) including $9M to outgoing leader and now SEC chair Mary Shapiro?* We’ll get to that in a second. I just want to explain upfront that this is a highly opinionated piece, and of course I am biased as it affects me directly. But is also affects my mission and passion, and many other advisors missions and passions to have a great career helping others navigate their finances as independent fee-based advisors who will help anyone regardless of their wealth.

First off – why an SRO? Well, with the Bernie Madoff and other problems not discovered by the SEC -(even though I think their problems were POLITICAL, not operational  – here’s Madoff whistleblower Harry Markopolos testifying that he told the SEC years before that Madoff was a scam and asking why they did nothing – of course in the ensuing legislation, Congress did not implement his suggestions, they just threw money at the problem):

Even with this little miss (or ignoring) by the SEC, some people including Spencer Bachus think Advisory firms need another regulator. But as Markopolos says above, enough regulations and regulators is not the problem. But $Bachus$ wants one anyway.

He is proposing using  FINRA – The Financial Industry Regulatory Authority (formerly NASD) which is the SRO for brokers.  Why? Not sure but lets examine FINRA for a second. First off, FINRA has some serious conflict of interest – many advisors can’t stand the bureaucracy of FINRA and broker dealers  and prefer to work on a fee basis. FINRA and broker dealers supervise to a low level of ethics because they are often supervising commissioned brokers who sell some funky products (Like this one), and therefore, advisors who want to work without conflicts on a fee basis leave brokerage firms (big and small) and start up their own RIA (Registered Investment Advisor) firms like I did.  I am registered with the state of Massachusetts – and work on a fee basis as I’ve given up my broker licenses. However, because so many advisors (like me) left brokers and went independent, FINRA is seeing some revenue flight.

And FINRA didn’t see the writing on the wall when most brokers were trying to maximize commission business and running advisory divisions as an afterthought. When FINRA finally realized people really wanted to be fee based consultative advisors, and not salespeople they were too late. Now they are trying to be an SRO for advisors, probably to make up for the lost income from brokerage firms going out of business or brokers leaving that side of the business to be advisors at independent firms.

This SRO proposal will kill small businesses (see this link from a Massachusetts Securities Division Survey that I participated in). I know advisors with practices smaller than mine, that simply enjoy advising a small clientele. They might earn $50,000/year and work from home – low key, the way they like it. Talk of these FINRA SRO fees is anywhere from $10,000-50,000/year!!! That will knock all these little guys out of business (41% of MA advisors likely) – the same little guys that do a lot of pro-bono community work and advisory work for lower fees, because they WANT TO. Average wealth clients will be forced to pay higher fees at larger firms (many of whom require $500,000 minimum investments or more) or have no advisor – at least no or very few independent fee-based advisor options.

Many are trying to fight this (such as TD Ameritrade and Charles Schwab – not disinterested but they do serve fee-based lower cost model clients – see HERE – btw, I use TD with many of my clients) but I can’t understand why a Republican wants to kill small businesses – my OPINION is, and this is just a guess, is that money is involved (I know a stretch in politics). But who knows the real reason. Bottom line, there is solid opposition and I hope that holds up – otherwise I might be forced out of business. Where would I get the extra $50,000 to pay the fee? Hit my clients up?

More reading: Massachusetts Full Survey Results

PS who knows how much heat I’ll get for this article – but I have to say something when I feel strongly. If you feel strongly about preserving small independent advisors as part of the landscape in the advising community, call your Congressman and tell them how you feel. Thanks for reading!

*yes ~$7M of Mary Shapiro’s pay that year was disbursement from a retirement account but who accumulates ~$7M in a retirement account from a non-profit? And how do they lose ~$700M in a year?