Our advisors are better.
That’s the basic message contained in a consumer-directed brochure issued this week by the Investments Industry Regulatory Organization of Canada (IIROC).
In light of recent events, the pamphlet, “Why IIROC Matters to you, the Investor,” is an appropriate reminder of why clients should keep tabs on how their advisors are licensed. Still, there’s more to the story.
Years ago, I used to write about brokerage compliance issues in the U.S., and that job called upon me to pour over reams of SEC actions and arbitration briefs outlining unethical and illegal actions.
In every case, those actions were taken by securities brokers and supervisors who were duly registered with either the New York Stock Exchange or National Association of Securities Dealers — prior to the merging of those markets’ self-regulatory functions.
The exercise taught me that people can pass exams and still be criminals.
To be sure, the man who created Nasdaq knew more than enough about his industry to pass a registration exam. That didn’t stop Bernard Madoff from committing massive fraud.
And yet, if Earl Jones taught us nothing else, it shows a financial advisor should at minimum be legally allowed to transact business in the investments or insurance markets — and preferably both.
Securities registration requirements are important, because they establish the mechanism by which misbehavior can be detected, and either altered or punished, depending on its severity.
And IIROC’s registration requirements certainly do the industry and investors good by creating, among other things, an audit trail and surveillance mechanisms, KYC obligations, and crucial record keeping requirements.
The brochure’s comments would sit fine — if not for the undertones of superiority. While it doesn’t go so far as to refer to advisors operating in other regulatory frameworks as Brand X, the brochure does read like the driving of a competitive stake by suggesting IIROC registrants are called upon to adopt a higher standard of behavior.
To quote the pamphlet, “Only those with the necessary training and education get our approval.”
A few MFDA- and insurance-licensed advisors I spoke with who have taken the time to earn designations and develop best practices for client interaction and service took issue with that implication.
Registration is critical to this business, and will always be a meaningful standard by which advisor competence is measured, but the best advisors know they must meet multiple challenges to reach the goal of being true fiduciaries to their clients.
The best advisors don’t rest on the laurels of any single set of letters, and they consistently jump well above the hurdles put in front of them by a regulator.
(07/31/09)