In a letter to the SEC Chairman Mary Schapiro, FPA urged the Commission to clarify and restrict the scope of authority of FINRA related to the financial planning services.
The letter responded to recent enforcement action taken by FINRA against Ameritas Investment Corp., a dually registered broker/dealer and investment adviser. The regulator fined Ameritas $100,000 and suspended and fined one of its brokers for sales and advertising violations (see “Ameritas Broker Suspended for Misleading Customers”).
FINRA alleged that broker Nancy Ziering, who is not a registered investment adviser (RIA), used misleading financial plans with more than 220 customers. Ziering recommended customers refinance their homes or take home equity loans in order to pay for insurance policies pitched as mechanisms to save for college and retirement.
In the letter, the FPA suggested that the case should have been referred to SEC, which directly regulates investment advisers, as Ameritas is a dually registered firm.
In response to the letter, yesterday FINRA defended its jurisdiction over financial planning activities at broker/dealers, as reported in InvestmentNews. “Ameritas is a case in which clearly FINRA has jurisdiction because 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,” said FINRA Executive Vice President Tom Selman, according to the news report. “The jurisdiction of FINRA is clear.”
FPA Pushes for Reform
The FPA argues that FINRA is unfit to regulate broad financial planning activities.
"FINRA has long warned against the problems of brokers engaging in questionable mortgage practices and, in particular, investing the proceeds in annuities or securities," said FPA President Richard Salmen. "As the primary regulator of Wall Street, we commend FINRA for cracking down on unsuitable sales of investment products within its regulatory authority. However, due to FINRA's absence of legal authority to regulate broad financial planning activities, and to its inability to impose a fiduciary standard that would enhance investor protection, we believe this task is best carried out by the SEC."
Salmen said investment adviser rules provide stronger investor protection through greater transparency of conflicts of interest and higher standards of professional conduct. Stockbrokers are subject to FINRA sales rules requiring them to ensure that brokerage transactions are suitable investments—but do not have to fully disclose conflicts of interest or act in a fiduciary capacity that places the client’s best interest first.
Congress is considering placing stronger fiduciary requirements over investment advice, regardless of whether the person giving the advice is a broker/dealer or an investment adviser (see “Proposed Treasury Legislation Pushes Fiduciary Requirement”)
“While it is uncertain whether Congress will be able to accomplish comprehensive reform this year given the crowded legislative calendar, during the interim we strongly support the Commission doing what it can to enhance investor protection,” Salmen wrote in the letter to the SEC.
FPA noted that in 2005, the SEC tried to put through a rule requiring brokers delivering financial plans to register as investment advisers. However, the rule was thrown out in court.