The Blog Of The Securities Industry Professional Association



Houston we have a problem. Perhaps no phrase has ever spoken more about a problem than these famous words from Apollo 13 years ago. One little problem turned into thousands of people working day and night to try and solve a ‘problem’ that eventually led to the safe return of the astronauts. Today in America we have an even more severe problem and that is a lack of faith in the Securities Industry as well as a failure to raise capital that can create real private sector jobs instead of the Government manufactured jobs. Rather then concentrate on the real problems like NASA did decades ago, our number one regulator has focused on the by product of the problem. Why in the world would you worry about putting a fiduciary standard on the brokers when the owners of the cartel firms on Wall Street are still operating in the shadows and using inside information to reap billion dollar profits? Would the Fiduciary Standard prevented Madoff, Sanford, Bear Stearns, Lehman, TARP? Of course not so instead of addressing the major problems we have, the SEC is targeting the lowest common denominator and the path of least resistance.

The SEC intends to push this standard through one way or another and let’s be honest the only thing that will come from this act will be more FINRA fines against firms and brokers alike. The Anti Money Laundering Act was supposed to end the flow of money to terrorist after the events of 9-11 and as we can see its has clearly worked because terrorism world wide has ended and Al Qaeda is bankrupt and no longer functioning. For those of you that are slow…I was being facetious. The only result of the AML act was that every month FINRA bangs out hundreds of thousands in fines against firm’s for not having adequate procedures in place to comply with the Anti Money laundering Act. Notice how they have not stopped money from being laundered by the mob or terrorists but have made a mountain of money assessing procedural fines for unrelated acts. This insanity is similar to fining Walmart for lacking procedures when selling rifles and expecting crime and gun violence to drop by levying such fines.

Since the Fiduciary Standard is being insisted on by the SEC as a way to suddenly make the industry crystal clean, we believe the time has come to reevaluate the 5% commission rule. Quite frankly the top line commission should have been raised years ago but with this new standard coming into effect we believe a top line standard of 10% should be implemented. The amount of risk on a Broker with each recommendation has increased so much that 5% is no longer acceptable for either the Firm or the Broker. A simple $10,000 trade for a new account pays a measly $500 commission that the broker must split with his firm. When that trade is entered the firm must do the following:

· Approve the new account on 3 different supervisory levels

· Send customer a privacy notice

· Send customer new accounts documents the size of a Private Placement Prospectus

· Review and approve the trade on three different levels

· Report trade to ACT, OATS and several other places

· Send confirmations and statements

· Pray like hell the trade is profitable

The entry of a fiduciary standard means FINRA can find something wrong with every single trade much like they can find a missing red flag with AML and levy fines. A trade like above will net a broker around $200.00 after payout, ticket fees and taxes as well as a bull’s-eye on his head from regulators Even if the trade makes the client a 500% profit. That’s right folks, just because you made your client 500% doesn’t mean you kept your fiduciary standard. Under this new rule a broker could be fined $5000 if FINRA in its sole discretion decides that the trade was not in the best financial interest of the client. This is why we believe that with all this added risk the maximum commission should be raised to 10% so the trade and recommendation is worth it to the firm and broker. We believe the 5% guideline is ancient and needs to be updated immediately to be commensurate with the cost of compliance with all these rules. The SIPA will be meeting with several new congressmen in the coming weeks and would like your input and support on this measure. Please contact us if you would like to be involved.

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January 25th, 2011



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