THE BLOG
12/29/2009 11:47 pm ET | Updated May 25, 2011

FINRA: A Wily Fox Guarding Your Nest Egg

FINRA is the Financial Industry Regulatory Authority. It's supposed to be an independent regulator for all securities firms doing business in the United States. In reality, it is a shill for the securities industry. Its unique authority prevents effective regulation of an industry that many believe has simply run amok.

In exchange for protecting its securities industry members, FINRA "regulators" are extremely well compensated.

According to the InvestmentNews, thirteen current or former employees made more than $1 million in 2008. Its former CEO, Michael D. Jones, pocketed severance and related benefits of $4.3 million. The current SEC Chairman, Mary Schapiro, was paid $3.3 million as FINRA's chief executive. She also walked away with $7.2 million of accrued benefits.

Ms. Schapiro does not like to slum it. She received $20,000 a year for "club memberships", $20,000 for "personal financial and tax counseling" (unlike many investors whose assets were plundered by FINRA "regulated" brokers, Ms. Schapiro had a huge nest egg to look after) and a car and driver.

FINRA has engaged in an aggressive advertising campaign, geared to persuading skeptical investors that it's really on their side. That's a tough sell. Its advertising agency, Doremus & Co was paid $5.5 million to make this dubious case.

FINRA's actions belie its pro-consumer PR efforts.

The Obama administration -- to its great credit -- has proposed that Congress authorize the SEC to restrict or prohibit mandatory arbitration agreements in consumer contracts. FINRA has long championed these clauses, which require investors to resolve all disputes with their brokers in arbitration proceedings run by -- you guessed it -- FINRA! Less than 50% of investors in these proceedings prevail and those who do receive a small fraction of their claimed damages. It's no wonder a comprehensive study found most participants felt the proceedings were rigged against them.

The Obama proposal has the support of many consumer groups, including the Consumers Union, Consumer Federation of American, Public Citizen, National Consumer Coalition for Nursing Home Reform, American Association for Justice, National Employment Lawyers Association, and National Association of Consumer Advocates.

The North American Securities Administrators Association announced its support, noting that FINRA's system is "inherently unfair to investors."

FINRA could eliminate its biased system by simply making a request to the SEC for a rule that would do so. Instead, it has crafted a slickly worded position which makes it appear that it's supporting this proposal, while it continues its efforts to oppose it.

According to its press representative, Brendan D. Intindola, FINRA "does not object to the Administration's proposal." However, when pressed, Mr. Intindola advised me that FINRA does not support making mandatory arbitration optional or abolishing it altogether. It simply believes that Congress or the SEC should make this determination. That, of course, is not the issue.

Nothing illustrates FINRA's anti-investor bias more starkly than its lack of candor on this issue.

Don't believe for a moment that this wily fox is really guarding your nest egg.

Dan Solin is the author of The Smartest Retirement Book You'll Ever Read.

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