Candidates for small-firm Finra board target regulatory burden

Paige Pierce has completed one three-year term on the Finra board representing small firms and is seeking reelection in part because she wants to help update the regulator’s rule book.

“There’s still a lot more work to be done,” said Pierce, owner and chief executive of Bley Investment Group Inc.

Pierce will try to retain her seat in the Financial Industry Regulatory Authority Inc. election this month against challenger Daniel Logue, counsel and chief compliance officer at Muriel Siebert & Co.

For Logue, the top issue is increasing communication to and among small firms regarding what he sees as a rapidly increasing regulatory burden.

“It’s difficult to capture the regulatory changes that happen almost hourly now,” he said. “The small firms have been lost in the shuffle.”

The battle for the small-firm seat is the only contested race in election for Finra’s board of governors, which is composed of 23 industry and public members.

The large-firm candidate Timothy Sheve, chief executive of Janney Montgomery Scott and the midsize-firm candidate James Crowley, CEO of Pershing Advisor Solutions were nominated by the Finra nominating committee and are running unopposed.

Firms can vote by proxy online, over the telephone or through the U.S. mail for the Finra board candidates in their size category. The voting has been going on since the beginning of the month. Firms also can vote in person at the annual meeting of firms on Sept. 1, when the election will conclude.

This year’s election is taking place as the financial industry is trying to return to normal operations while the coronavirus lingers. One of the lessons learned from pandemic how to work from home should be reflected in the Finra rulebook, Pierce said.

During the pandemic, Finra implemented temporary rules allowing for remote branch office inspections. Finra chief executive Robert Cook wants to extend the relief into 2022.

Pierce would like to see permanent changes that enable firms to supervise their registered representatives remotely, she said.

“You don’t have to be in the same building, but the rule says you do,” Pierce said. “That’s a real problem. There needs to be some modern-day elasticity to the rule book.”

Another area that needs a revamp is the oversight of outside business activities, she said.


One of Pierce’s priorities is not directly related to her Finra board activity but is important to small firms, she said.

She is seeking to revive legislation in Congress that would ease small broker-dealer audit requirements. The bill, which died when it wasn’t approved during last year’s legislative session, must be revived in the current Congress.

Under the legislation, small broker-dealers that do not retain custody of customer funds and are in good standing with regulators would not be required to have their annual audit conducted by a firm that is registered with the Public Company Accounting Oversight Board. They could instead use a firm that follows generally accepted auditing standards created by the American Institute of Certified Public Accountants.

Pierce has been championing the bill since 2018. It has garnered Republican House and Senate authors but has been halted by Democratic resistance. She is trying again this year.

“You have to time it right, and there’s a strategy to advancing bills on [Capitol] Hill,” Pierce said. “It’s essential that this be bipartisan.”

The high cost of a PCAOB audit is causing pain to most small firms, Pierce said. “This seems to be the one thing that is the tie that binds.”


Although he’s in the only contested race for a board seat, Logue is not focusing on the incumbent. “I’m not here to criticize anybody,” he said.

Instead, he said he wants to better connect the approximately 3,000 small firms that comprise the vast majority of Finra’s membership.

“If I were on the board, I would have monthly communications about different regulatory and industry matters,” Logue said. “It has been trickle-down, and I believe it should be a more direct and regular flow. There should be a better way for us to understand everything that’s going on in the industry.”

If he can make progress on that objective, “it will make small firms much stronger in the industry than they are today,” he said.

One of the things about Finra oversight that small firms have trouble grasping is the different fees that are assessed as part of their membership in the broker-dealer self-regulator.

“It’s not like a large firm, where it’s a write-off,” Logue said. “All the fees for a small firm affects their profit margin.”

A small firm is defined as one with fewer than 150 registered representatives. A midsize firm has between 151 and 499 reps, while a large firm has 500 or more reps. As of the end of 2020, Finra regulated 3,435 brokerages 3,079 small firms, 191 midsize firms and 165 large firms, according to its latest industry snapshot.


The biggest challenge for Finra small firms is dealing with regulations, said Robert Keenan, chief executive of St. Bernard Financial Services, who held a small-firm seat on the board from 2013-16.

He said the regulatory burden which comes not only from adhering to Finra rules but also complying with state regulations is a major factor in the decline of the number of small firms from the 5,374 level they hit in 2002.

Brokerages firms are making the transition to registered investment advisers overseen by the Securities and Exchange Commission because regulation is less costly in that business model, Keenan said.

“When I started this firm, I could do compliance one afternoon a week,” Keenan said. “Now, it’s the full-time job of two staffers. Finra needs to do a better job of helping the small firms stay in business.”

Small-firm board governors can make a difference if they can influence a rule before it gets to a board vote, Keenan said.

But the Finra board meets behind closed doors and puts restrictions on governors discussing board matters publicly. That can create challenge during an election.

“You can’t talk about what you’ve done, and consequently, the small firms don’t know the work you’re doing on their behalf,” Pierce said. “But I’ve been doing a lot of work.”

Bridging the gap between stocks and bonds

The post Candidates for small-firm Finra board target regulatory burden appeared first on InvestmentNews.

Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.

Andrew Vincent
Andrew is half-human, half-gamer. He's also a science fiction author writing for BleeBot.
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