Are You A Fiduciary? SEC’s Attempts to Create More Distinction

fiduciary blog update profiles the financial industry is bubbling thanks to SEC effort to redefine terminology and specifically, who it applies. In this case, the confusion comes in with who is a fiduciary and who isn’t.  This blog update is courtesy of The Philadelphia Inquirer columnist, Erin Arvedlund. The excerpt below comes from both Arvedlund’s blog and her Monday column, “Monday Money Tip: Beware financial advisers who are not fiduciaries“.

arvedlund-150x150Before you sign on with a money manager, ask: Are you a fiduciary? If yes, great. If not, go in with your eyes open.

Fiduciaries, by law, have to do the right thing by their clients. No one on Wall Street wants, by law, to have to do the right thing.

Some street professionals are fiduciaries; registered investment advisers generally are, brokers are not.

And the distinction grows every day.

Anyone whose job is to raise sales cannot meet the fiduciary standard, notes Knut Rostad, president of the Institute for the Fiduciary Standard.

“Brokers may provide useful product recommendations, but they cannot meet the fiduciary standard,” Rostad says.

“They can no more provide objective advice about investments than can the Ford car salesman objectively advise on cars. They may be terrific people but, by virtue of what they do, they will most assuredly provide terrible advice.”

The issue is confusing, and Wall Street wants to keep it that way.

Read the entire article from the The Philadelphia Inquirer, here, and for more financial commentary, click here for Erin Arvedlund’s blog.  

FINRA Gets “A” For Funniest Branding and Double-Speak, Says Industry Watcher


When it comes to its own “brand positioning” and the doublespeak corporate messaging used within the collateral of securities industry self-regulator FINRA, the powers that be might be better off spending more time policing itself as opposed to the millions of dollars it spends on policing its brokerdealer constituents, particularly when it comes to beating up BDs whose advertising messages are alleged to be “inaccurate and/or misleading,” according to Forbes writer Ed Siedle. blog update is courtesy of Siedle’s recent piece “Finra Keeps America Laughing” with extract below from Siedle’s “Financial Watchdog” blog.

A Financial Industry Regulatory Authority (FINRA) employment advertisement from the Wall Street Journal I read in 2013 was such a hoot that I had to clip it, save it and promise myself I’d write about it someday. The newspaper ad scrap, now yellow, still is a knee-slapping, rib-tickler.

Here’s the hysterical double-speak FINRA used to describe itself in the recruitment piece (with emphasis added on only the most absurd).

“FINRA is an independent, non-government regulator for all securities firms doing business with the public in the United States. FINRA works to protect investors and maintain market integrity in a public-private partnership with the Securities and Exchange Commission, while also benefitting from the SEC’s oversight. In its role as investor guardian, FINRA is informed, but not influenced, by the industry that it regulates.”

Mama Mia!

For the entire article from Ed Siedle, click here.

Restructuring Advisement Firm, Houlihan Lokey, Sets Sites On $200m IPO

Houlihan Lokey blog update profiles the restructuing firm, Houlihan Lokey Inc., who is usually helping other companies have succuessful mergers and acquistions, is planning its own step to more success by preparing to launch an intial public offering that could raise at least $200 million.  This blog update is courtesy of the Wall Street Journal article, “Houlihan Lokey Lays Groundwork for IPO“, an excerpt from the article is below.

Houlihan Lokey Inc., known for advising companies on midsize mergers and acquisitions and big bankruptcies, is gearing up for a deal of its own.

The firm is planning for an initial public offering of stock this year, according to people familiar with the matter, which would make it the latest independent investment bank to cash in on increasing client and investor demand. A Houlihan IPO could raise more than $200 million, the people said. Based on valuations of similar firms, Houlihan could be worth more than $1.5 billion.

The firm, founded in 1972, has been investigating a possible IPO since last year, and recently decided to move forward with one, the people said. Houlihan is discussing the plan with banks interested in arranging the deal, including Goldman Sachs Group Inc. and Bank of America Corp., though any share sale isn’t expected until the second half of the year, the people added.

To read the entire article on the Wall Street Journal’s website, click here.

SEC Charges Bond Firm For Using Un-Registered BrokerDealers blog update courtesy of extract from

The U.S. Securities and Exchange Commission (SEC) has charged over 20 companies and individuals for carrying out securities transactions without the appropriate broker-dealer registration. The companies regularly transacted bonds on behalf of Chicago-based trading firm, Global Fixed Income LLC.

According to federal securities laws, companies need to be registered as broker-dealers and maintain books and records of their transactions. In addition, the SEC is doing periodic inspections of the companies in order to protect their clients.

After a thorough investigation process, a SEC investigation found that Global Fixed Income LLC, which has mostly been active in buying investment grade corporate bonds, has signed agreements with the third parties mentioned above to act on the firm’s behalf.

The investigation found out that between July 2009 and June 2012 the companies bought billions of dollars worth of newly issued bonds causing a substantial increase in the allocation of Global Fixed Income LLC.

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The company was easily able to sell or “flip” the bonds within a few days to realize a small profit, splitting the proceeds profits with the unregistered broker-dealers. Since during the period the bond market has been on a persistent uptrend due to the treasury and mortgage purchases by the U.S. Federal Reserve under its quantitative easing program, the trades were easy to execute due to oversubscribed auctions.

The deals were arranged by Global Fixed Income and its owner Charles Perlitz Kempf, who agreed to settle the SEC’s charges along with the 21 third-party participants. While not admitting to wrongdoings, the firms will collectively pay nearly $5 million in disgorgement of profits plus approximately $1 million in penalties.

The Director of the SEC’s Los Angeles Regional Office, Michele Layne, shared in the regulator’s announcement, “Global Fixed Income essentially hired firms to act as brokers on its behalf and purchase billions of dollars of newly issued bonds to increase profitability in the bond market, yet none of the firms or their employees were registered to legally act as brokers.”

For the entire story, please click here

Finra Focus On High-Frequency Trading; HFTs Might Need BrokerDealer License

high frequency trader blog update profiles the latest shoe to drop as both the US Securities & Exchange Commission (SEC) and Finra contemplate regulatory changes that could require firms engaged in high-frequency trading aka HFT to become registered brokerdealers. Below is excerpt of coverage from

US regulators have moved to close a loophole that allows some high-frequency trading firms that trade equities away from regulated exchanges to operate with light supervision.

The Securities and Exchange Commission on Wednesday proposed requiring proprietary traders to become members of the Financial Industry Regulatory Authority, a markets regulator.

The change would give authorities greater oversight for the day-to-day operations and recordkeeping for many high-speed traders and electronic market makers who dominate much of trading on US equity markets.

“Today’s proposed rules would close a regulatory gap by extending oversight to a significant portion of off-exchange trading,” said SEC chair Mary Jo White.

It is the first move by the US regulator to tighten monitoring of high-speed electronic traders, which aim to profit from rapid-fire moves in the market, following intense scrutiny on the industry a year ago. Flash Boys, a book by author Michael Lewis, alleged that high-frequency traders were among the beneficiaries to a market structure that was “rigged”. That led to calls for greater oversight of HFTs and off-exchange trading which had been building as equity trading increasingly moved to venues outside the traditional exchanges.

The SEC’s proposal would amend a rule that exempts certain brokers and dealers from membership in a national securities association. The existing rule reflected practices more than two decades ago, when equity markets were dominated by floor-based exchanges which could more easily regulate all of their members’ trading activity.

That world has largely disappeared as the emergence of high-speed technology and alternative trading venueshas helped usher in a new breed of proprietary traders that dominate trading. Although some have registered as broker-dealers at Finra, such as RGM Securities, Quantlab Securities and Tradebot Systems, there are also many that have not.

To read the entire story from FT, click here