The Blog Of The Securities Industry Professional Association


A Significant loss stirs the membership

Recently FINRA announced to members a proposal for increased fees as well as a ‘significant loss’ for fiscal year 2011.  For many years FINRA has largely operated behind the wizard of Oz curtains and has told members what they felt they needed to hear rather then open the curtains and let members see everything.  The recent announcement by Rick Ketchum however was a stark contrast from administrations in the past.  Although FINRA’s year end audit is due in April of each year, the past few years the audit has been released sometime in summer with little or no explanation for the delay.   This year is no different, except for the fact that rather than surprise members in the summer, Ketchum appears to be cushioning the blow by telling members now that there is a big loss and that fees will be increased.  Obviously nobody is ecstatic to hear this but on the other hand at least there is open and honest communication.  For this we applaud FINRA and would hope that more will follow.  FINRA cited lower trade volumes for 2011 as the reason for the loss and we will take them at their word; however FINRA as an organization profited to the tune of 100 million combined for 2009 and 2010 so we will be interested in seeing how this loss is laid out.  There have been some whispers that losing investment positions from several years ago are finally being closed out but we have no way of knowing that.  In the meantime membership is facing increased fees across the board for a variety of things.  Although the fee increases appear moderate, to the battered membership this is the last thing they wanted to hear.  It was only five short years ago that NASD and NYSE regulation merged and promised members better efficiency and lower fees.  The reality of the merger is that almost no staff reductions were made at the time.  The single biggest expense FINRA faces as an organization is employee expense and benefits.  If you review the audited financials of FINRA from 2008 through 2010 the total compensation spent just on employee compensation approached 1.6 Billion dollars.  When you consider that FINRA employs roughly 3000 employees, the amount of yearly compensation for each employee for fiscal year 2010 comes to $180,000 per employee.  This is a staggering and unsustainable amount for a non profit organization to pay.  We would venture to guess that less than 25% of the brokerage firms had net profits of $180,000 for the past year.  The proposed fee increases appear to try and limit the across the board burden to most firms however to a membership that has seen its PCAOB Audit expense explode and has been hammered by new increased SIPC and Fidelity bond fees this is not welcome news.  We would urge all members to submit comments directly to the FINRA web page and make sure your voice is heard on these proposals

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May 9th, 2012



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