COMPLY-Caution should trounce speed in 2013 reforms -SIFMA chief

Wed Dec 19, 2012 12:08pm EST

Dec 19 (Reuters) - Developing new U.S. securities industry regulations may stretch well into 2013, or even beyond, but the delays do not trouble Chet Helck.

Indeed, the chairman of the Securities Industry and Financial Markets Association, or SIFMA, says that rushing the process - just to finish regulations required by the Dodd-Frank financial reform law and other legislation - could trigger more problems.

Speed versus deliberation is just one of the tough topics facing Wall Street next year. Other concerns include the impact of new and proposed regulations on brokers, and how best to streamline some of the varied rules that apply to different types of financial advisers, SIFMA's chairman told Reuters in an interview.

The concerns come after the Dodd-Frank financial reform law and other legislation required and authorized certain federal agencies, including the U.S. Securities and Exchange Commission, to develop rules that affect everything from sales of unregistered securities to changes in ethical standards for securities brokers.

SIFMA, a major Wall Street trade and advocacy group, has been deeply involved in many of those discussions, pushing regulators to craft some points in ways that the industry says will be more practical for it to implement.

Helck, who is also chief executive of the Global Private Client Group of Raymond James Financial Inc, says the conversations will continue for as long as it takes to get the details "right."

He spoke with Reuters about the industry's 2013 regulatory landscape. Excerpts of the interview follow.

Q: What is the biggest regulatory challenge facing the retail brokerage industry during 2013?

A: Our industry has evolved and grown well past the regulatory framework which we've lived under since the 1930s.

Markets, technology, products, economies - everything has changed so dramatically. And the regulation just hadn't evolved to keep up.

Q: The departure of former SEC chairman Mary Schapiro means the agency will begin 2013 with four commissioners. Could that slow Dodd-Frank reforms?

A: Only about a third of the required rules for Dodd-Frank have been done, so the vast majority is still in front of us. It is late, but frankly, it's important to go through this in a thoughtful and considered way.

If they make rules just to make them on time, and those rules don't work, it can lead to the same types of dislocation that having no regulation would bring.

Q: Financial Industry Regulatory Authority has a new rule in which brokerages must make sure their recommendations for investors are suitable at all times, not just when the transaction takes place. How will that affect the industry during 2013?

A: These rules are directed toward making sure that the financial adviser knows the client well enough to (ensure) that whatever they're advising is not only suitable, but the best option they can come up with for that client.

There are many advisers where that's the predominant culture. If you've always done it that way, it's not a big change. If you're the product-driven person who has pitched products with no real assumption of responsibility for helping clients determine it's their best choice, then it may be a big change for you.

Q: Many advisers are leaving brokerages, where they are regulated by FINRA, to become registered investment advisers who are regulated by the SEC or states. Does this concern you?

A: Most advisers who leave keep their brokerage licenses and also work as registered investment advisers in a hybrid model. But it concerns me that there is an unleveled playing field on the regulatory front (for different types of advisers).

FINRA (which oversees the U.S. brokerage industry) is a tough regulator, so I understand why some find it challenging and costly to meet all the requirements. However, the public deserves to have the same protections regardless of an adviser's business model.

There is a need to harmonize the regulatory framework so that we have the same consistent high level of care for clients who receive the same services by advisers, regardless of their business model. I think it will happen. I don't know whether it will be completed in 2013.

Q: Financial advisers are facing uncertainty about the "fiscal cliff" - a combination of numerous tax and government spending cuts that are expiring, and which could affect the economy in 2013 and beyond. Is it possible for advisers to recommend strategies for clients to plan for so many potential changes?

A: Absolutely. Can you prepare for it perfectly? Never. Preparing for it perfectly means being able to guess the outcome and doing exactly what can optimize the outcome. You never can do that. Diversification gives you a less-than-optimal result but it also protects you from a devastating result. And that's the best you can hope for. Clients have to deal with this uncertainty whether they want to or not.

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