FSI to SEC: Fee Hikes Would Shaft ‘Main Street America’

FINRA’s proposed fee hikes for new applications and branch office registrations would force many independent broker/dealers (IDBs) out of business, the Financial Services Institute (FSI) said.

The group that would be hurt the most is “Main Street America” that IDBs typically serve, FSI said in a July 19 comment letter to the Securities and Exchange Commission (SEC), released Monday. FINRA records show that in 2008 there were more than 5,000 broker/dealer firms, and by 2012, that number had fallen to 4,400, according to FSI. With the average median profit margin for IBDs a mere 1.7%, the increased costs to enter or possibly even remain in the financial planning industry would be prohibitive, FSI said.

One of the increases FSI is particularly alarmed over is the fee for new member applications, rising from its current range of $3,000-$5,000 to $7,500-$55,000, with an additional $5,000 charge for new member firms. Firms that have become FINRA members would be hit with a new “continuing-membership application fee … from $5,000 to $100,000, depending on the size of the firm,” FSI said.

In asking for these fees on top of “recent significant increases in FINRA’s Personnel Assessment (PA) and Gross Income Assessment (GIA) [in 2009], FINRA has failed to provide an appropriate justification for these significant fee increases, especially in light of the current economic climate,” David T. Bellaire, Esq., FSI general counsel and director of government affairs, wrote in the comment letter.



Bellaire asked the SEC to consider the fact that IBDs provide critical financial advice to middle class members of their communities, to whom they are often personally referred, and to whose financial success they owe their own prosperity: “Independent financial advisers are entrepreneurial business owners who typically have strong ties, visibility and individual name recognition within their communities and client base,” Bellaire wrote. “Due to their close ties to the communities in which they operate their small businesses, we believe these financial advisers have a strong incentive to make the achievement of their clients’ investment objectives their primary goal.”

Benjamin Gordon, a broker/dealer in West Palm Beach, Florida, also sent a comment letter to the SEC opposing the proposed fees, and cited FINRA’s most recent financial report disclosing “staggering” average per-employee compensation expenses for 2011 of $174,000. He stated that FINRA is his firm’s largest fixed cost and mentioned the recent GAO Report criticizing oversight of FINRA. (See “SEC’s Oversight of FINRA Could Be Better, GAO Says.”)

In sum, FSI told the SEC, “We believe if FINRA’s substantial fee increase proposals are adopted, they will result in additional IBD firm failures. The failure of IBD firms has a significant impact on the securities industry, investing public and industry innovations. These innovations often are adopted by others in the industry and become best practices. … The proposed fee increases would increase the financial burden on broker/dealers and financial advisers at, what appears to be, the tail end of a significant recession … and place too heavy a burden on financial advisers and IBDs at this time and should be rejected by the SEC.”