Better Late Than Never

Painful as it was, the financial crisis was actually beneficial in one key aspect: It created an opportunity for the financial services industry to clean up the excesses no one would address when times were good.

Say what you want about Congress and regulators, but FINRA and the SEC have gotten many changes right. Their edicts with regard to CEO pay, broker disclosure of recruiting checks and out-of-whack incentives for Wall Street professionals will eventually benefit investors and advisors.

That’s not to say all of the post-crisis legislation was beneficial. BASEL III is too restrictive. Dodd-Frank, a few exceptions not withstanding, has become a 14,000-page monstrosity.

The Upside For Everyone
After we stepped back from the financial abyss, the regulators were focused on preventing another meltdown of epic proportions. Since the consensus opinion was that Wall Street and Congress were equally responsible for the mess, there was much to doubt as they got started.

But they did some good work.

First was a crackdown on the incentives for Wall Street’s highest-paid professionals. It was long overdue. Wall Street’s incentives were completely misaligned. The compensation for risk-taking and questionable deals produced too much bad behavior.

Then came the SEC’s recent proposal to force firms to disclose the pay differential between the CEO and the median compensation for employees. Back in the 1970s, the differential was 25 to 1. According to a recent story in The New York Times, the ratio today is 350 to 1 or 1000 to 1, depending on whose numbers you believe. Public disclosure of this ratio will pressure boards to manage the optics.

Wall Street’s Hotte$t Commodity
The latest rule to remake Wall Street is FINRA’s proposal requiring retail brokers to disclose the amount of their recruiting packages to all of their clients when they change firms. This idea has been bouncing around for as long as I can remember, and I have a strong point-of-view on the topic. (See “FINRA Saves The Three-Day Weekend,” August 2013, Wealth Consigliere)

Recruiting high-end stockbrokers has always been an arms race. Just like any arms-race, there is no winner. Disclosure of multi-million dollar recruiting packages will fundamentally change the recruiting game.  Time will tell if this change is for the better.

What Took Everyone So Long?
It took a disaster like the financial crisis to overhaul Wall Street for one simple reason. Money talks. Wall Street’s lobby is unbelievably strong. In fact, Wall Street didn’t really support these changes; it just decided not to fight them.

The bottom line is this: FINRA and the SEC got it right. It’s not often you can say that about regulators, but they did. All of us will be the beneficiaries. The trust that was destroyed will have an opportunity to come back.



 We believe that you can’t legislate morality, but some new commandments can’t hurt.

Comments

Post a Comment

Popular posts from this blog

Inorganic

Image
Our industry has always looked down on Wall Street’s recruiting checks.  Last week there were numerous announcements that independent firms were offering advisors money to purchase their practice.  The term for these transactions is inorganic growth.  This week we will look at why these transactions are the new rage and examine if they are better than the old Wall Street checks. Wempy Popeye and financial advisors fall for the “I’ll gladly pay pay you tomorrow for a Hamburger today” pitch.  Unfortunately Popeye and and most financial advisors provide their hamburger but seldomly get paid what the firms and Wimpy promise .  Why?  The advisors need the cash and Popeye is gullible.  On Wall Street the deals adjusted when the advisors changed firms looking for a new deal every five to eight years.  The recent Luminous departure shows that the advisory contracts need to be adjusted.  The new contracts are written by experienced firms and lawyers to prevent serial departures. 
Read more

Stop Judging

Image
I have known that I have MS for over four years.  My doctors believe I have had MS for over twenty years.  Initially, When I received this diagnosis  I was very opinionated when I saw disable people. I assumed the worst. As a currently disabled person I can educate and warn you regarding things you shouldn’t say to me or disabled people..  This blog will educate on my disability. The places it manifests itself and how you can react and support me and other disabled people. The three items are: 1.) Needing a walker 2.) Government disability  3.) Falling MS causes me to loose my balance and fall.  The walker prevents this reality  I look at walkers as being as sign of old age,  I was incorrect and a good walker is an aid!  With a walker I fall less often.  I might look old, but I am OLD! Our government provides support to the millions of MS patients in the US.  Support is through Social Security and must be approved.  I am approved. The service can be cancelled if i get a full time job.
Read more

Career Hacks

Image
We are in constant pursuit to be the best we can be in our profession.  Is there a hack to help us?  Some days it feels like others have found one.  The Baby Boomer hack was to be a Doctor, a Lawyer or work for Goldman Sachs.  Millennials believe in the power of social media hacks and that a job at Google is on the Yellow Brick Road.  This week I’ll look at other experts and share my opinion that there isn’t an easy solution to professional success. Academia Those who  can’t do teach and those who can’t teach, teach gym .  Many of the established ideas that guide people in the wealth advisory business where researched in academia.  While their research is credible most academics remain as advisors not a practitioners.   William Sharpe  might be an exception to this rule.  He lost at Long Term Capital but was a recent  winner with Financial Engines .  Resilient and richer. Conferences and Media We attend industry conferences looking for hacks.  The concepts present
Read more