FSI Urges SEC: Don’t Let FINRA Raise Fees

The comment letter and FSI's 'Call to Action" for members to comment is part of the group's "constructive engagement" with regulators, Brown said, "taking advantage of opportunities to comment" on a host of regulators' proposed rules. FINRA first proposed the higher fees in April, with FINRA Chairman and CEO Richard Ketchum arguing that the increases were necessary to recoup a "significant loss" in revenue the BD regulator suffered in fiscal 2011.

Moreover, Brown said, the impact of the higher FINRA fees goes beyond raising the cost of doing business for broker-dealers and reps, and "it's safe to assume that they'd need to pass on some of those costs to their clients. This is not the environment nor the right time for this to happen." Further, "if the compliance environment continues to get more costly, complex and uncertain," warned Brown, "at some point that means fewer choices for consumers." 

In its comment letter, FSI wrote that "IBD firms operate on very slim profit margins," noting that its 2010 Broker-Dealer Financial Performance Study found that from 2004 to 2009, the "average median profit margin for IBD firms was 1.7%." The increased FINRA fees would place even more pressure on IBDs, the comment letter states, and would "come on top of astronomical increases in SPIC assessents, SEC fees, fidelity bond premiums" and E&O insurance premiums.

FSI has been a vocal supporter of FINRA as the preferred self-regulatory organization for RIAs under Dodd-Frank; Brown laid out FSI's arguments in a blog post for AdvisorOne in May. In the interview Monday, however, Brown said that its support of FINRA as the SRO for RIAs "was not a blank check endorsement," and that while FINRA has a "long, solid track-record as a regulator, it must " continue to improve and reform as a regulator." FINRA, he said, must not only "become more effective," but also be "sensitive to the cost of their regulatory responsibility to member firms and advisors and the unintended consequences" to investors.