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Wednesday, November 15, 2017

Simultaneous Service

Last year, I used some of my time as a guest blogger to draw some attention to the persons appointed as public governors at the Financial Industry Regulatory Authority (FINRA).  I've kept an eye on this issue and co-authored a report on some interesting choices FINRA made for public governors.   The InvestmentNews has also covered it.  Many of FINRA's public governors now simultaneously serve on the boards of financial firms, including Bridgewater Associates (the world's largest hedge fund), Travelers, Blackstone, Legg Mason, Bank Leumi, Kita Capital Management, and others.  These concurrent positions may reduce public confidence in FINRA's ability to zealously protect investors.  Yes, those are the Public Governors.  The industry-elected governors come from JP Morgan, Merrill Lynch, Piper Jaffray, and other firms.

Financial Planning Magazine picked the issue up and reached out to Nell Minow about it.  She had a critical take:

'It's just a disgrace,' says corporate and nonprofit governance expert Nell Minow. 'These conflicts of interest are a monstrous issue. It destroys any credibility that the organization has at all.'

Minow, who is vice chairman of ValueEdge Advisors in Portland, Maine, was not involved in PIABA’s report. 'This is exactly the reason that we don't like to see industries regulate themselves," she says. 'Normally it takes a government agency at least a generation to become completely captive to industry. But in a self regulatory system, it takes five minutes.'

Still, I'm hopeful that FINRA will do more on this issue.  It's recently selected a new CEO and launched an ambitious 360 degree review.  Hopefully it will also do more to address conflicts of interest. It also has an open slot now.  We should keep an eye on who they appoint. Importantly, the people serving on its board now are all likely doing the best that they can.  Still, it would be best if FINRA (which describes its stated mission as "investor protection and market integrity") would do more to put people with investor protection backgrounds on its governing board.  To help with that, we also included a list of qualified persons with investor protection backgrounds.  Congress may also be paying more attention to the issue now.

Posted by Benjamin P. Edwards on November 15, 2017 at 03:00 PM | Permalink


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