FINRA Members

If you’re a FINRA “member”, the warning you see (left) is on almost every Morningstar report a client sees (or is for internal use only). Questions aside about why, doesn’t it seem a bit twisted that clients and prospective clients are treated differently by FINRA (wikipedia) than a non-FINRA member?

Morningstar powers a ton of back offices.  They cover every major firm on Wall Street. And so does the FINRA warning.

As a Registered Investment Advisor do I have to include that warning? Nope. Not right now anyway.

I’m not a ‘member’ of FINRA, I am registered with the SEC. I can click a box to turn off the disclaimer. Of course, I have other rules and disclaimers to follow. Most of the rules I have to follow are tied to truthfulness, fiduciary standard, and general recordkeeping. Most of FINRAs are tied to procedure. Ways to disclaim and disclose how you are probably getting screwed, while someone is trying to sell you a product. FINRA is there to throw up an impenetrable set of procedures and paperwork to protect you.

So, is that a good thing or a bad thing? Which one is right?

And, that’s the debate right now…

To me, what is interesting about the above warning is this: that it is to “members” of FINRA.  Innuendos aside,  members… Like a country club. As an investment advisor, I am not a member of the SEC.  I am regulated by the SEC.  Insert Jokes, I know.

Personally– of the two, I think FINRA should be killed– the resources nationalized to supercharge the underfunded SEC. Consider it a token gesture, for the bailouts we gave the banks. And going forward, the firms should be forced to pay into the SEC rather than maintain “memberships” within FINRA.

end. of. story.

Some will say every government program has failed. And right now, I can’t say I disagree; but at least you have the regulators on the same side of the law.  So, if it’s a dumb law– we change it.  When you introduce self-regulated regulators– it’s the fox watching the hen house.  The result? We’ve ended up with a industry that is regulated based on the assumptions of the industry’s self-policing efforts.

And how’s that one working out?  Well, we’ve got a full court press over-regulating sentence structure, to deem an annuity sale suitable or the next hot fund, rather than whether the Wall Street Advisor FINRA member acted in your best interest.  Regulations on which reports you can show to a client vs. a  sales prospect prospective client. And why? Because FINRA has continued to let all of the stupid profitable stuff slip by, cramming more product down our collective throats.  So, while FINRA may be better at policing and inspecting, they spend most of their valuable time and resources monitoring things that should never be in the first place, ignoring all of the generally wrong things that come from salespeople acting like they are an actual Investment Adviser (wikipedia).

And certainly the SEC has missed too, and sure some of it’s political and power plays… a game beyond me.  But, to me– ultimately the SEC answers to the people, FINRA doesn’t.  And that’s a big key for a properly structured regulatory framework.

Broker Sue’s FINRA over transparency: Reuters