Four candidates for the small-firm seat on the board of governors of the Financial Industry Regulatory Authority Inc. want to make the broker-dealer regulator responsive to the compliance pain their sector is feeling.
The nominees — Mark Howells, CEO of M.S. Howells & Co.; Stephen Kohn, president and CEO of Stephen A. Kohn & Associates; Bob Muh, CEO of Sutter Securities Inc.; and incumbent board member Robert Keenan, CEO of St. Bernard Financial Services Inc. — were announced Friday after qualifying for the ballot.
There will be no election for the open large-firm seat. Mary Mack, president and head of Wells Fargo Advisors, had been nominated but “withdrew as a candidate after a change in job responsibilities,” Finra said
in the election notice.
A special election will be held later to fill that position and another large-firm seat. There are 184 large-firm members of Finra, which are defined as those having 500 or more registered representatives.
The election for the small-firm seat will be held Sept. 19 at a Finra board meeting in Washington. The approximately 3,571 Finra small-firm members can vote electronically, by mail or in person. A small firm is defined as one that has 150 or fewer registered representatives.
“There's no question that there's a crisis in the financial services industry, especially for small broker-dealers,” Mr. Muh said. “The largest contributing factor is compliance. The cost of satisfying all the regulatory burdens has become prohibitive.”
Two of the bigger compliance headaches for small firms are the Labor Department rule that would raise investment-advice standards for retirement accounts and a rule that requires an independent annual audit of brokerages, according to Mr. Muh.
Audits performed by firms certified by the Public Company Accounting Oversight Board can cost $10,000 to $12,000, while an audit by a CPA could cost $5,000 or $6,000.
“It's hard to justify having that kind of requirement for the small broker-dealers,” he said.
Too often, a regulation is designed to apply to all firms, Mr. Howells said.
“One size doesn't fit all,” he said. “There's a lot of rules and regulations that are overkill for small firms.”
Mr. Howells particularly chafes at the cost and length of mandatory Finra reviews when a firm wants to change or add to its line of business.
“It almost borders on a restraint of trade,” he said.
Mr. Kohn has been unsuccessful in several previous attempts to win a Finra board seat. He is trying again this year because he continues to be frustrated by the plight of small firms.
“There are so many things that are not right, that are not being dealt with for the small guys,” Mr. Kohn said. “The message has got to be brought to [Finra] in a strong, rational way. It's a matter of education.”
The
Finra board consists of 24 members, 13 of whom are public governors and 10 of whom come from the industry. Finra CEO Robert Cook also sits on the board. Three seats are held by members representing small firms.
Mr. Keenan, the incumbent in this year's election, said he deserves to be re-elected to a three-year term because it takes more than a year for a new board member to become acclimated to Finra governance.
“I'd like to carry that experience going forward,” he said said. “It does help.”
During his term on the board, Mr. Keenan said that he raised concerns about the costs to small firms of a Finra proposal to require a link on each firm's homepage to BrokerCheck, the online database containing brokers' employment and disciplinary histories.
He said that he also opposed a Finra proposal for an automated data collection system that would review brokerage activities in almost real time to try to detect potential investor harm. He said such information was already being gathered at the firm level and the Finra program would be too costly.
The
BrokerCheck link proposal was modified and the
data-collection system was shelved.
When Mr. Keenan was first elected in 2013, his firm was
implicated in a bribery scandal involving an Arkansas public official.
A former firm representative has been barred from the industry, while the public official has been jailed. The SEC sent Mr. Keenan a letter in March clearing him of any connection to the incident.
“I got a clean letter of health from the SEC,” he said. “I'm going to frame that letter. This was a whole lot of headaches.”
Mr. Keenan's firm has
five disclosures on its BrokerCheck record, while Mr. Kohn's
has three and Mr. Muh's
has two. There are no disclosures for Mr. Howells' firm.
