Broker-dealers and registered reps should not bear the burden of increased fees from Finra after the regulator's “failure to properly prepare for the inevitable market downturn,” according to a notice sent to broker-dealers last week from the Financial Services Institute.
The notice or “call to action” memo from FSI — a trade group that represents 113 broker-dealers for independent contractor reps — urges broker-dealers to fight the proposed increases to fees by submitting comment letters to the Securities and Exchange Commission. The memo includes four talking points recommended for firms to highlight in their letters to the SEC.
Last month, the Financial Industry Regulatory Authority Inc.
filed a proposal with the SEC to double each individual rep's “personal assessment” and alter the method of calculation of broker-dealers' gross income assessment.
The FSI is drawing attention to Finra's fees just as the losses suffered by Finra's $1.6 billion investment fund last year gaining notice. The fund decreased by 27% last year because of an aggressive strategy, and now the fund appears to be missing out on the recent market surge because the regulator is more conservative this year.
Finra wants to increase the assessment it charges on individual registered representatives to between $130 and $150 a year, from $65 to $75.
According to the FSI memo, the “root cause” of Finra's losses was its lack of preparation for the market downturn. Therefore, it is “unfair to burden the broker-dealers, financial advisers and their clients, all of whom suffered greatly during the recent market downturn, with these additional fee assessments.”
The memo also adds that the doubling of the individual reps' assessment is “unjustified by any reasonable calculation of inflation over the five-year period since the last increase in this assessment.”
What's more, the independent broker-dealers and reps will feel a greater sting than others from the proposed changes in the gross income assessment because of the “unique” aspects of the independent business model, the FSI memo states.
A Finra spokesman, Herb Perone, did not return a call to comment.
