Small Firm Conference Fireside Chat - Missed Opportunity?

December 4, 2023

By way of introduction, I am Stephen Kohn, Founder and Chair of the Financial Professionals Coalition.  Since its inception, the Coalition’s role has been as middle-man, so to speak, providing referrals to free professional services consultations for both the individuals and firms who keep the markets moving and make it all work, the disenfranchised, 1.2 million financial professionals.  The Coalition is also dedicated to act as a foil between, and an advocate of the membership and FINRA, hoping to encourage easing the out-of-control regulatory burdens that grow, each and every day.  These burdens have become a time-sink, taking time away from helping clients and running a business, something I know first-hand.  While a small firm owner for 25 years, I served for 6 years on the National Adjudicatory Council and 3 years as a small firm governor while trying to run my broker/dealer.  The Coalition’s 38 co-founders and 6 Featured Members provide a wide variety of free, consultative resources to address issues that are presented through a link on its website, www.finprocoalition.com.

This year, as every year, a Fireside Chat with Robert Cook, the President and CEO of FINRA was a high point of both the Small Firm Conference and the FINRA Annual Conference.  My expectations are always high especially when I feel that the Chat may reveal some exciting news about something really innovative that’s going to make all our lives a bit easier.  Instead, this year, we got “Member Firm Hub,” a gathering of “resources” from various locations hidden on Finra.org.

I was unable to attend the Conferences, so I listened to recordings of this year’s Small Firm Conference Fireside Chat (https://www.finra.org/media-center/finra-unscripted/small-firm-conference-fireside-2023)   with Robert Cook and the “Chat” between Robert Cook and Board Chair Eric Noll at the Annual Conference multiple times and read the chat transcripts, waiting, wanting, looking for an epiphany, something that would give me hope that things may get a bit easier for the little guys.(https://www.finra.org/media-center/finra-unscripted/looking-forward-with-finra-and-eric-noll)   No such luck.

In my mind, there are at least two groups that I consider the little guys, the small broker/dealer and the registered representatives who provide the revenue to keep them alive.

While I applaud the words, it seems like I’ve missed the message.  However, I did hear an in-depth acknowledgement of what small firms provide to investors and small businesses in their communities at the Fireside Chat, something that every member of the audience knows, firsthand, rather than more pressing issues like declining membership, and TRANSPARENCY to name just two; a missed opportunity.  I didn’t hear anything encouraging from Chair Noll except an emphasis on protecting the investor and running orderly markets that we’ve been hearing for years.

What I find most distressing is that regulation continues to drive its small member firms out of business, contrary to our regulators’ assessments.  It would seem that both of these “Chats” would be a perfect forum to air some of the following factual, published information, and more, in an open and transparent way.  Perhaps ideas for how to stop the bleeding may come from the small firm community itself, if anyone would stop to listen.  The decline in membership is really simple math.  Follow this…

In its 2003 Year In Review, the NASD, now FINRA, reported 5,392 Broker/Dealer members and a staff of 2,100 employees as reported on page 22. (https://www.finra.org/sites/default/files/Corporate/p010697.pdf)  

Twenty years later, on page 13, In the 2023 FINRA Industry Snapshot, FINRA reports 3,378 member firms (https://www.finra.org/sites/default/files/2023-04/2023-industry-snapshot.pdf)  and a staff of 3,600. (https://www.finra.org/careers/working-at-finra#:~:text=Visualize%20yourself%20as%20one%20of,employees%20–%20what%20do%20you%20see%3F)

That’s more than one staff member per firm, a 37% decline in membership and a 71% increase in staff.  That’s really distressing.  Where does the money to pay the additional staff come from?  The answer is obvious…

I haven’t heard of any plans to increase membership, have you?  So much for transparency.  It’s almost like we’re dealing with a “Secret Society” that operates with very little regard for the little guys, registered reps, traders, small firms, who are ordered to tithe a growing portion of their revenue to support their SRO.

Oh, lest I forget, let’s talk about the last FINRA Board of Governors’ election, for a moment or three.  As you all know by now, there was a dearth of ballot choices since both the large and small firm candidates ran for their seats unopposed. (https://www.finprocoalition.com/news/1016/finra-2023-bog-election/)   

It was brought to the Financial Professionals Coalition’s attention that a phone room was calling firms that were ignoring the election and not voting.  The call was to convince them to vote, if even by just checking the Abstain box, voicing their lack of confidence of the election on the ballot rather than ignoring the ballot completely.  What was left out of the plea was that in so doing, they WOULD be participating in the election and helping to make a quorum certifying the election.  One can only infer that FINRA didn’t have enough votes to make a quorum and in its absence, thereby voiding the election according to FINRA Bylaws and, there would have to be a do-over.  So, what’s the big secret?  Again, so much for transparency.

When word of the calls from FINRA’s proxy calling room became evident, Bill Singer, an esteemed securities attorney, called upon the small firm membership to boycott the BOG election but, apparently, the damage to the process had already been done.  When the “victory” of the solitary ballot candidates was announced, Mr. Singer asked FINRA to provide the vote count for the candidates and the abstentions which helped make the necessary quorum.  FINRA has yet to provide this information and, again, there is no earthly reason for why it remains a secret.  In fact, Mr. Singer also filed a Form TCR with the SEC and asked that FINRA's conduct in the 2023 Small Firm BOG election be investigated.

Perhaps there’s a reason that the candidates had no opposition.  Could it be the election process?

Please understand, the Financial Professionals Coalition is not advocating anything more than correcting a disconnect between the Board of Governors, that appears to be working in a vacuum, and the membership who foot the bills.

 

There are other pressing issues that demand the Coalition’s attention and comment and these are issues for which the “Fireside Chat” would have been a perfect forum for really exhibiting transparency and a true level of concern, not just using the word, which has become fashionable.  Yes, a missed opportunity, to be sure.

The Coalition wants to hear from you, in confidence, about issues that need to be addressed.  We cannot solve everything, but we can sure make FINRA aware and, perhaps, press for answers, if not resolution.

The Financial Professionals Coalition can only be your champion if you reach out and ask for help.  MEMBERSHIP IS FREE, REFERRALS ARE FREE.

Financial Professionals Coalition, Ltd. 
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Stephen Kohn, Chair
November 29, 2023