At the Financial Services Institute’s (FSI) Forum & Capitol Hill Day, WSR had the opportunity to speak with several industry leaders and members of FSI’s Board, including Dale Brown, FSI’s President and CEO; Ed Forst, CEO of Lincoln Investment; and David Knoch, CEO of Docupace, about the importance of advocacy for the wealth management industry.
Brown On Advocacy Engagement For The Long Term
Harkening back to the founding of FSI, Brown said, “Twenty-one years ago, the regulatory environment was getting more difficult by the day.” He gave ENRON and WorldCom as examples, and the Sarbanes-Oxley Act in response to these events boosted the power of the SEC. At the same time, responses to the World Trade Center destruction included regulatory burdens to prevent the financing of terrorism. Later, the Dodd-Frank Act in response to the Global Financial Crisis further constricted the regulatory environment.
With this backdrop, Brown said FSI set about influencing regulators and policymakers with a “compelling message of the value of independent financial advisors, advice and wealth management for all Americans,” along with a “real world” view of the consequences of regulation.
FSI aims “to be constructively engaged in a manner that works,” according to Brown, who said its members cultivate relationships with and serve as a resource for regulators and policymakers. Brown emphasized that developing relationships over the long term is important to maintain a seat at the table as the political winds change through the years.
The organization cultivates relationships not only with heads of committees and policymakers who have been at their positions for many years, but also with more junior officials who will lead in the future. Brown points out that in its first 21 years, FSI has already witnessed many changes in the White House, the Senate and the House, and that advocacy must be built to weather those changes.
He also emphasized that FSI is bipartisan, and the issues it advocates for advisors and clients are concerns relatable to policymakers regardless of party affiliation.
Addressing FSI’s court cases, Brown sees litigation as a tool that can be used when needed to effect positive change. He explained that litigation is grounded in the system of checks and balances designed by the framers of the Constitution, and its use for advocacy fits in the contemplated framework.
Forst On Educating Regulators And The Voice Of The Advisor
Forst said that advocacy can help the industry gain clarity on key issues, giving the DOL’s independent contractor rule as an example. Regulators may view independent contractor status as a way for employers to take advantage of a would-be employee and not realize they are inadvertently targeting financial advisor independence. Advocacy provides the opportunity to educate regulators, who are often uninformed but well-intentioned.
Forst actively promotes FSI membership to Lincoln’s advisors as “an affordable way to get a seat in D.C.” He said that advisors are often unaware of how advocacy benefits them.
As an example, in a recent exercise, his firm asked advisors for an “opt out” rather than “opt in” format for FSI membership, which led to “about 40 good conversations with advisors” in which many of them, upon understanding how advocacy affects their practice, decided to become members. As a result of the exercise, about 100 advisors who previously were not members took up membership.
Forst stated that it is important for the voice of advisors to be heard directly in advocacy efforts and by other advisors, such as Ben Wuerffel, Financial Advisor with Capital Analysts of Jacksonville, Florida, a Lincoln affiliate. Wuerffel is a member of the FSI Board.
“The voice of the advisor is the voice on the ground,” Forst added, emphasizing that this voice matters in educating and convincing regulators and policymakers.
Knoch On The Importance Of Advocacy For Service Firms, Deductibility Of Fees And Regulation By Enforcement
David Knoch, who has served three times on the FSI Board, said that advocacy is important for wealthtech firms like Docupace and other services firms in the wealth management space, because regulation that impacts financial advisors impacts the entire industry. “A healthier financial services industry is better for us all,” he said.
Knoch said that advocacy helps bring clarity to “opaque regulatory agendas,” giving regulation by enforcement as an example, an issue that FSI has been keeping at the fore both in past conferences and in this current conference. He pointed out that a principles-based regulatory system that becomes too focused on details creates unclarity, and such a focus is better suited to a prescriptive regulatory system.
He also noted the deductibility of investment advisory fees – which is currently being discussed in the House as part of tax reform legislation – is an important advocacy initiative. Deductibility of fees encourages people to seek professional financial advice, Knoch said, making it more affordable for average Americans to enjoy the benefits of financial advice.
Beyond advocacy, Knoch pointed out that FSI provides trade association solutions to issues that arise in the industry such as insurance coverage for independent advisors, which it addresses with the CoveredAdvisor Benefits Program.
Julius Buchanan, Editor in Chief at Wealth Solutions Report, can be reached at julius.buchanan@wealthsolutionsreport.com.
