Back in the mid-eighties, early in my career, the wife of the owner of a firm where I was registered, referred to the industry's self-regulatory-organization (then the NASD) as the "Bully." In my naiveté, I never understood what she meant, that is, until the firm was forced into liquidation. No, I'm not going to tell you that it was shut down without issue; but, at the time and even now, in retrospect, I believe that the firm met its demise because the owner chose to fight the Bully.
Well, here we are, 2022, and the Bully has survived its NASD days and strengthened into FINRA. My industry experiences have clearly shown that we little guys are still fighting for survival. On one front, we battle with multi-layers of industry regulators: the states, FINRA, and the SEC. Talk to enough small firms and you'll hear about the flood of rules and regulations that don't pertain to our footprint -- and then you'll hear about examiners and investigators who come into our shops with a lot of preconceived notions about how we're defrauding the public and cutting compliance corners. It's as if the regulatory community is intent on clearing the decks of all smaller firms and rigging the industry so that it's only large firms.
Which brings us to the second front: The Large Firms. For reasons that will never make much sense to me, the big firms feel threatened by competition from we little guys. In trying to drive us out of business, they raid our registered representatives with the help of FINRA's BrokerCheck database. Also, anytime there's an initiative to ease the burdens on small firms, the larger firms manage to exert their muscle and block the reforms. Oddly, the small firms are the majority of FINRA's membership, something like 90% or more, but our needs never seem to matter.
The regulators drop upon us a staggering pile of new edicts, which are impossible to comply with while small firms are simultaneously trying to take care of our clients and run our day-to-day business. Another thing that's been hanging over our heads since 2007 is the costly PCAOB Audit, which clearly requires revision to better address many unnecessary impacts upon small firms. How big is the compliance staff at your firm? How many attorneys do you have on staff to defend you against the onslaught? Sadly, the large firms actively thwart small firm rule "exemptions," at any level -- even those that would ease unnecessary regulatory burdens without posing any harm to investor protection. One size regulation does not fit all on Wall Street.
Although the large firms put up the greatest resistance to the legitimate needs of the small firms; ironically, those same large firms continue to have the most regulatory and consumer issues. Look back at the headlines of recent years -- it's the so-called wirehouses, the financial superstores, the mega-financial-services-complexes that nearly brought our economy to ruin and who got slammed with millions of dollars in fines. Yes, there are bad actors among smaller firms. Yes, I wholeheartedly support enhanced regulatory initiatives against boiler-rooms and pennystock hustlers. Yes, the small firm community must vigorously police itself. On the other hand, FINRA does not regulate fairly or evenly when it comes to our community. The heavy hand of regulation comes down upon the smaller firms with disparate impact. It's not fair. It's not balanced.
So, where are we? The small firm community is on its death bed. Regulators are engineering us out of existence through overblown rulebooks and biased regulation. Given that FINRA is a membership organization, one would have hoped for some energetic opposition to the inevitable decline of some of the 90% of FINRA's membership -- look it up, the so-called FINRA Small Firms account for 90%-plus of the total number of member firms. Where is the voice of the FINRA Board of Governors? Sadly, it is a whisper, if anything at all. With few exceptions. no FINRA Governor has the guts to take a stand on behalf of the little guys -- and over the years, it has become infuriating when you recall how many of our elected Governors ran on a platform promising vigorous advocacy for small firms and the implementation of reasonable reforms. Once elected, we got silence from our purported advocates. They sit quietly. Collect their honorarium. Say nothing. Do nothing. All the while, the numbers of small firms dwindle.
There is, as always, talk about how "transparent" FINRA has become; I don't see it. FINRA remains, and will continue to remain, an enigma. In recent years, no substantive information has been about Board action; it's only superficial reports about Board "discussions." More disquieting is that I have heard nothing about small firm initiatives propelling some form of relief from the battles that keep sinking our ships. The Board shows no indication or desire to sit down and talk about the new, and the old, draconian rules that continue to make it impossible for small firms to keep their doors open. Ultimately, the large firms perpetuate their greed at the expense of the little guy and the regulators refuse to ease the regulatory burden and continue to pile them on. To sum it up, after all my years in this business, I still see intractable regulators, greedy large firms, and a shrinking bunch of little guys fighting to keep their heads above water and their business' afloat. So, what else is new?