Tuesday, June 21, 2011

FINRA Targeting Small Firms and Individual Brokers?

John Crudele at the NY Post recently penned a column Small Firms Claim FINRA Targets Them that is generating quite a reaction. We represent a large number of small firms, ranging from firms with 5 registered representatives to approximately 300 registered representatives, and our clients are the ones who originally alerted us to the article. There is a fair amount of truth to the article - FINRA is much more aggressive with small firms than it is with big firms.

Anyone who follows FINRA enforcement proceedings has a hint of the disparity, when we see wirehouses like Merrill Lynch and Bank of America receive the equivalent of wrist-slap fines for their violations. What the general public does not know is that for the same violation at any of the other 4,000 firms in the country the fine would be multiples, on a percentage basis, against the small firm, and the charges would include charges against individuals at the firm, not just the firm. When was the last time you saw FINRA name Ken Lewis or John Thain in an enforcement proceeding? Don't bother looking, it has never happened, but take a look at how often they name the president or senior executive of a BD with hundreds of brokers as a respondent.

The simple fact is that FINRA is out to show how tough it is which causes numerous problems. FINRA examiners simply love to spend months at a firm during a routine audit - yes, I said months. Imagine trying to run your business while you have to dedicate a conference room to two examiners, provide them with a staff member to fetch documents and make copies for them, and make yourself available on a moments notice to answer questions. Now imagine that going on for 4 or 5 or 8 months, every day.

This of course is in addition to the hours spent complying with the morass of rules and regulations that often do not apply to your particular business model, knowing all the while that one missed form, one account not verified, or one other slip up could cost you a fine starting at $2,500.00. It is not a pleasant existence.
And FINRA knows that the small broker-dealers, and individual brokers, cannot afford the fight - so FINRA brings the fight, but brings it against the small broker-dealers and individual brokers, betting on the fact that the firm cannot afford to fight and will therefore settle the charges, regardless of how questionable the charges. It happens every day.

But now smaller firms and individuals are starting to fight back and are devoting the resources to defend themselves against the FINRA onslaught. And we are starting to see a turn in the statistics.
The heavy-handed issue remains, and Mr. Crudele has now posted a followup, - Tales from Wall St. about heavy-handed Finra detailing the reaction he has received to the original article and promising more articles on FINRA's apparent desire to destroy the small broker-dealer industry.
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