[Enoch Root]

Originally Posted by Cecil Terwilliger

Yes but you're missing the point that an unscrupulous advisor would much prefer to be in charge of his own oversight than have a dealer breathing down his neck.

No I don't think that's true at all. An unscrupulous advisor would want a) less oversight (which is why many of them migrate to the EMD space), or b) oversight from others, removing themselves from some of the responsibility. Firms that are responsible for their own compliance do not have less oversight - you have a clear mis-conception here.

The last thing an unscrupulous advisor would want is to be personally responsible for their compliance. And that is the most important item in all of this IMO.

It's actually funny the argument you are making because you are just making assumptions that the dealer removes all responsibility from the advisor. In my experience it is the opposite. Their oversight keeps advisors aware of the regulatory requirements. And you are also assuming that being in charge of their own compliance will just make every advisor more knowledgable of the regulations and follow them. Again, my experience is the opposite.

Your experience is anacdotal.

First, I made no such assumption (that the dealer removes all responsibility from the advisor), what I said was that when the responsibility is left to the dealer, the advisor has less responsibility and that can lead to less understanding and less interest in the reasons for the regulations.

I am curious as to what your experience is with respect to advisors being in charge of their own compliance. Very few advisors are. Basically, we are talking about private investment counsels, and in my very extensive experience with them, the only way to even exist in that space is to have a very thorough and complete understanding of the regulations and why they exist. We're not talking about advisors making up their own rules and flying by the seat of their pants here, we're talking about having to take personal responsibility for the entire process, because the dealer isn't doing it for you and leaving you in a black box.

So please, I would love to hear about this personal experience.

Either way a dishonest advisor is likely to find ways to skirt the rules. I just think it is easier when they don't have a dealer. My assumption is the dealer is doing their job, which may not always be the case.

To the first sentence, yes - regardless of the structure of regulation, dishonest people will seek ways to skirt the system. The question is: which system does the best job of deterring them? And more importantly, which system does the best job of holding them accountable?

When you say you think it's easier when they don't have a dealer, I am left thinking that you don't understand the other platforms.

And to your final sentence about the dealer doing their job... this actually sheds more light on my argument because part of the problem is that the dealer's goals are not necessarily aligned with the purpose of the regulations. A dealer wants to create an environment where their advisors are free to generate as much revenue as possible. What that generally leads to is a minimum level, lowest common denominator type of system.

Dealers are constantly lobbying for less regulation and softer rules, because when you are responsible for the compliance of others, you want those rules to be as soft, and as vague as possible.