financial services investor protectionThe media says financial services is one of the most regulated industries in America. If that is true, how do you explain headline after headline that documents investor abuse and billion dollar fines? Are you really safe because big brother is watching?

There are three primary types of agencies that are supposed to protect you from bad companies, bad advisors, and bad financial products. Note, the protection does not cover bad advice or bad results. In those cases, you are on your own.

Financial Industry Regulatory Authority

FINRA is supposed to protect you, but it has a major conflict of interest. It is funded and controlled by Wall Street. So many of its regulations are just window-dressing that does not protect you from the bad guys who sell shoddy financial products for big fees and commissions.

Securities & Exchange Commission

The SEC is also supposed to protect you. This organization does not receive direct funding from Wall Street, but it is controlled by politicians who receive sizeable contributions from financial services firms. Wall Street spends more than $300 million per year on lobbyists who make sure politicians vote for industry regulations that favor firms and not investors.

State Agencies 

Every state, except Wyoming, has commissioners who oversee the financial services sale of investment and insurance products in their states. They have authority over the people who sell these types of products in their jurisdictions.

I have to say, the insurance commissioners are more professional than the investment commissioners. But, that is not saying much. Most of the investment commissioners provide service levels that are right out of the Stone Age. They do not feel any need to automate investor access because investors can find the data on national regulatory agency websites (FINRA, SEC). There are no national agencies for insurance so the states act more responsibly, but the information is still very limited. 


These agencies have limited prevention capabilities so they do not get involved until an investor has suffered a loss. In some cases, the losses are catastrophic and recoveries are pennies on the dollar.

How do you enforce rules when 90% of information that is communicated to you is verbal? There is no written record of what was said to you. It is your word against the financial advisor if there is a future dispute that you will lose because you have no documentation.

If FINRA is involved you are limited to mandatory arbitration that is designed to protect Wall Street. You might say Wall Street owns the casino, makes its own rules, and controls or influence the processes that you use if you are damaged. Think about it! The casino damages your financial interests and your only recourse is a panel that is controlled by the casino.

Prevention Means You!

Prevention is better than enforcement. For example, the best solution for Madoff clients was not to hire him in the first place. But, investors need factual information they can trust and they have to know how the facts impact them.

Wall Street does not want you to have this information because you may not buy what its representatives are selling. The Wall Street solution makes the withholding of information perfectly legal. Consequently, financial advisors do not have mandatory disclosure requirements. They tell you what they think will help them sell investment services and products.

This missing regulation makes it your sole responsibility to ask the right questions and know good answers (benefit you) from bad ones (damage you).

The next time you hire a financial advisor ask for a one page document that describes why you should select that advisor. The page should describe the advisor’s education, experience, certifications, licensing, compliance record, compensation, and other pertinent data.

This is as good as it gets when advisors do not have audited track records or mandatory disclosure requirements.