Talking is good — any marriage counselor will tell you so.
I mention this because the relationship between regulators and the brokerage industry lately resembles that of a long-term union that's hit the rocks, and the pair could benefit from opening up a little more to each other.
At the risk of straining this metaphor, I'll submit that one partner in this marriage is now playing a familiar role — that of the long-suffering spouse who has decided not to take it anymore. This is an ominous and counterproductive development for all involved.
Regulators and Thin Skin
These ruminations have their root in a recent decision by the Big Three securities regulators (NASD, SEC and NYSE) to abruptly cancel their scheduled appearances at a prominent securities conference because they were offended by the way the conference was being promoted.
The conference, entitled Prevailing Against Customer Claims: Strategies for Discovery, Arbitration Hearing and Proceedings, was a serious one that took place over two eight-hour days and qualified the lawyer-attendees for state continuing education credits. The American Conference Institute (ACI) invited representatives from the New York State attorney general's office, the SEC, the New York Stock Exchange and the NASD to attend as speakers on this year's Broker/Dealer Defense Forum panels. Such forums are all about open conversation. They sometimes get contentious, when the lawyers criticize certain regulatory initiatives and the regulators respond in kind by wagging their fingers at industry trends they find worrisome. But this back-and-forth is precisely what is useful about such forums. The exchanges illuminate the regulators' thinking on matters that might not otherwise have been clear to advisors or their lawyers.
A few weeks before the ACI forum, the SEC, the NYSE and the NASD abruptly withdrew from the conference. The NASD, in a letter to ACI dated a week before the conference, said it would not attend because it was “disturbed to receive the brochure for the program…the title and content presents a pure anti-consumer tone.” Likewise, the NYSE stated that it could not attend “due to the anti-investor tone of the program's brochure.”
On its surface, this might seem a tempest in a teapot. I mean, what's the big deal if some regulators decide not to attend a conference, right? Cancellations are part of the conference game, are they not? Well, that is true to an extent, but there are a couple of larger points to be made here. The most important is that this is no time for the regulators to be easily offended. The securities industry is desperate for guidance on just about every imaginable regulatory front, and it's the regulators' job to give that guidance whenever possible.
In declining to attend this reputable conference at the last minute, the regulators probably thought they were making a significant statement — and maybe some received their message. But I would submit that their reaction is akin to a spouse getting so offended by the direction of an argument that he or she clams up. Such an action might enable the silent one to claim the higher moral ground, but it greatly hinders the couple's ability to resolve its problems. If there was something offensive about the way the brochure for the conference was written, the regulators could have used it as an object lesson during their presentations: “This is the kind of stuff we're talking about — fix it!”
Instead, we got silence — though not on all fronts: The New York State attorney general's office decided to follow through and to send a speaker to the conference. She was warmly greeted, her remarks gratefully received by those in attendance.
It's worth noting that the attorney general has been the only regulator doing a meaningful job these past few years. Maybe they just understand how their relationship with the industry is supposed to work.
Writer's BIO: Bill Singer is a practicing regulatory lawyer and the publisher of RRBDLAW.com