Registered Reps, B-D's, Dropping Your Securites License

[scagnt83]

In 30 years I've seen plenty of people crammed into securities just because that's what the guy they were talking to happened to be selling. FINRA and the NASD before them have completely gone off the reservation. And yet with all the compliance and email monitoring and blotters and reams of paperwork and new account forms and firm element and field audits and prior materials approvals and web site oversight and needing to know if I serve on my homeowners association board and whether I coach a little baseball team and all the rest... has done NOTHING to protect consumers from bad securities salesmen. What it HAS done is to drive many good people out of the securities industry.

Madoff should have been caught several times, but the compliance investigators were too busy asking some schlub why he didn't forward an email to their supervising principal.

You can no more legislate ethical business practices than you can morality.

Id agree. We need a regulatory system that is focused on fraud and suitability. Not one that is focused on process and paperwork.

Part of the problem we have with the SEC investigators is that their average career lasts about 4 to 5 years (actual stats from the SEC).
Then they are recruited by the investment banks and hedge funds to be compliance officers; so they go from a $100K/year salary to a million dollar salary...
Why would they aggressively investigate their future employers?

In Great Britain investigators are paid on a commission basis.
I forget what the exact percentage is, but its something like 10% or so that they get of the recovered assets.

Madoff said multiple times that it was pretty obvious what he was doing.... think about how much more quickly he would have been caught if the investigators where more worried about a 10% cut of a billion dollars, instead of worrying about working for the guy in a few years...

Our regulatory system is not only backwards, but its borderline corrupt.



None of this changes the fact that having a securities license will give you the ability to provide a more comprehensive service to clients; compliance has nothing to do with it.

 

[DHK]

I gave up my 6/63 4 years ago, and when on to make much more money with out compliance crap, I have since got my 65 and was an IAR for 1 year and then set up my own RIA firm. no one here has mentioned the next big trouble Source of funds,cause if you tell some one to move the money from a security product you had better have the right license??just my 2 cents

IMO, you need to clarify explicitly what the reason is for each step.

Selling the security - why sell/liquidate the holding?
1. Is it because it's inappropriate? Not a good reason when you don't hold the appropriate licenses.
2. Is it because of performance? A definite maybe.
3. Is it because it is a source of funds to fund a different financial vehicle? This would be the most appropriate reason.

You see, you need to steer the conversation away from the PERFORMANCE and APPROPRIATENESS of the current investment and determine which choice the client wants.

Do they want to keep it where it is? Or would they like to move a portion into a new product?


I think it's funny that some advisors out there think they can tell the client what's in their best interest. I like to give each client choices. There are some choices I can do myself. There are other choices that they'll need to get done by someone else.

Let the client decide. But make sure they have ALL THE FACTS so they can decide intelligently - and not regret the decision later.

 

[Mac1958]

In 30 years I've seen plenty of people crammed into securities just because that's what the guy they were talking to happened to be selling....

You can no more legislate ethical business practices than you can morality...

Yep, can't argue. There are plenty of people in both the insurance and securities professions who give the rest of us a bad name. Hence, the unfortunate need for strict regulations.

My point is that if a representative is only professionally qualified to offer a client a very limited amount of options, the client is probably not best being served. That's why the sale of EIA's is being so carefully scrutinized for further regulation - an insurance agent can't offer a senior a mix of, say, municipal bonds and dividend-paying stocks, so many resort to the EIA with its long surrender period. I'll bet most of us have run into seniors who were stuck in one of those.

Also, I like EIA's. But I think it's better to be able to offer choices because of the inherent weaknesses of the product. I have to wonder what would happen to EIA sales if their commissions dropped to 3%. I'll bet that magically there would be less interest in selling them.

.

 

[Larry Tew]

I have to wonder what would happen to EIA sales if their commissions dropped to 3%. I'll bet that magically there would be less interest in selling them.

No question about it.

 

[Larry Tew]

...and if fees for managing risky investments were to drop to 25bps/year, there would probably be less interest in doing that, too.

No question about that either.

 

[Norwayguy]

Yep, can't argue. There are plenty of people in both the insurance and securities professions who give the rest of us a bad name. Hence, the unfortunate need for strict regulations.

My point is that if a representative is only professionally qualified to offer a client a very limited amount of options, the client is probably not best being served. That's why the sale of EIA's is being so carefully scrutinized for further regulation - an insurance agent can't offer a senior a mix of, say, municipal bonds and dividend-paying stocks, so many resort to the EIA with its long surrender period. I'll bet most of us have run into seniors who were stuck in one of those.

Also, I like EIA's. But I think it's better to be able to offer choices because of the inherent weaknesses of the product. I have to wonder what would happen to EIA sales if their commissions dropped to 3%. I'll bet that magically there would be less interest in selling them.

.

My issue with the securities side of the business cropped up once I was required to submit all FIA business through the B/D and submit to all the regulatory hassle of the securities side...While at the same time being limited to a small approved list of of providers and product....

I was told we could see about getting additional products added if they met certain criteria in regard to surrender charge length and other items...What drove me nuts was included on the approved list was FIA that if they where not from a preffered carrier would not meet the criteria to be added to the list, they said nothing with surrender charge length longer than 10 years but they allowed FIA from a preffered carrier with 14 and 16 year surrender charges. They would mess with the GDC payout based on the product type sold.

So it is true that there have been many unethical Insurance Agents and Registered Reps but lets not forget the greed of the B/Ds.

 

[sman]

My sentiments exactly. While I don't produce a great amount of income from my securities business, it is enough to pay the bills. Add on the insurance side and I do ok.

Additionally, it opens other doors just as insurance does. Sometimes I get in the door with investments and others through insurance.

There is no one size fits all.

I'm 7/65 - Yes, compliance can be an annoyance, but it's worth it to be able to offer a wide range of securities to best match the needs of the client. If an FIA is called for, great. VA, great. REIT, ETF, you bet. 1000 shares of GOOG, I'm there. Personally, I don't think that cramming someone into an FIA because that's the closest thing to a security that you can offer is always going to be in the best interest of the client.

We're dealing with people's lives, life savings, retirement, family, security and legacy here. That kind of responsibility shouldn't be easy.

.

 

[ql96a]

Can you put "Retirement Planning" on your business card and other marketing materials if you are not a Registered Rep?

 

[crimsontideagent]

I have 6/63 - mostly do VA's, occasionally mutual fund portfolios.

I've started a thread in the annuities section on FIA's vs Variable Annuities I would appreciate all of you participating in.

Thanks.

 

[wfs]

I gave up my 6/63/26 in 2000. It became a compliance nightmare... I am considering getting it back again though.
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Can you put "Retirement Planning" on your business card and other marketing materials if you are not a Registered Rep?

Probably, because you are not specifying "investments". Part of retirement planning may be a permanent insurance policy to protect your assets. Of course, you can never sell or market insurance as a "retirement plan" or lead the client to believe that the plan is similar to any qualified plan.

With that said, this may be a grey line that I would think about crossing. When it comes to compliance, especially securities compliance, I play scared and err on the side of extreme caution.