May 2012 Newsletter: Brokerizing Financial Advice

Posted by on May 15, 2012 in MFA Insights

Would you believe that in the aftermath of the financial crisis legislation has been proposed that will result in LESS consumer protection in finance?

“Brokerizing” Financial Advice

Under normal circumstances, we do not burden our clients with the details of the regulatory issues we deal with on a daily basis. Periodically, we send you required notifications such as our privacy policy and updated regulatory forms. Our focus is on communicating about your financial well-being.

But recently, legislation has been proposed in Congress that we feel could adversely impact investors in general and you in particular. We believe that consumers of financial services can use more protection from the bad guys; however, our opinion is that the current proposed legislation is a step in the opposite direction.

The Investment Oversight Act of 2012 is a piece of legislation being sponsored by Rep. Carolyn McCarthy and House Finance Committee Chairman Spencer Bachus, who has ironically been under ethics investigation for insider trading. The law is designed to put all fiduciary oriented Registered Investment Advisors (RIAs), like MFA, under the authority of the same regulator who controls traditional brokerage firms. All RIAs are required to put the interests of their clients first when they give financial advice. We would now be fully regulated by Financial Industry Regulatory Authority (FINRA) – the regulator that was on duty while Wall Street brokerage firms were selling toxic mortgage pools and derivatives, leading up to the near-collapse of the financial system in 2008. Formerly known as the National Association of Securities Dealers (NASD), Bernie Madoff was regulated by this organization from the day he opened his Ponzi scheme for business. As a ‘self-regulating’ organization, Mr. Madoff even served on the Board of Governors of this organization back when it was the NASD. Under the new guise of FINRA, it has not changed.

We believe the world is a safer place when finance is regulated by a third party such as the Securities and Exchange Commission (SEC). At MFA, we feel the resources should be directed at building up the infrastructure and experience of such an organization that does not have financial interests in the area they are regulating.

Under normal circumstances, we might have confidence that our Congressional representatives will see through this ruse and do the right thing for their constituents. Unfortunately, a lot of Wall Street lobbying money is being spent to “brokerize” the financial world. These large brokerage firm lobbyists prefer to defer to FINRA because it is a self-regulatory organization – meaning just what it says!

In the 2011-2012 election cycle, Rep. Bachus was the number one fundraiser from commercial banks, finance/credit companies, mortgage bankers and brokers. It appears that his best efforts may not be directed at protecting consumers from the people who are paying for his re-election. On November 13, 2011, Rep. Bachus was one of the subjects of a 60 Minutes report on insider stock trading in Congress called “Insiders”. Here is a link to the script and video.

Please view this note as a heads-up that the structure of our financial regulatory system may be about to change, which, we believe, is a step backwards for investors everywhere. As our client, you and your financial well-being are very important to us. Please know that we are monitoring this situation with the full attention that it deserves. We are always available to speak with you if you have any questions.