SEC Commissioner Unpacks Industry Challenges at FSI Forum

Last month, we gathered in Washington, D.C., for FSI Forum. Coinciding with Capitol Hill Day, the event was an opportunity for members to come together, learn about the latest legislative and regulatory issues facing the industry and gain practical tips for improving their businesses and best serving their clients.

As part of it, we were delighted to welcome SEC Commissioner Mark Uyeda. Appearing on stage with FSI President & CEO Dale Brown, he answered questions and provided insights into his work at the SEC and the latest regulatory developments.

Commissioner Uyeda’s appearance at FSI Forum underscores the quality of the relationships we have forged over the years and speaks to our commitment to engage constructively with the people who regulate our industry. Below are some highlights of our conversation with him.

The Pace and Breadth of SEC Rulemaking 

This year, we spoke out on the SEC’s rulemaking agenda, which we believe is too much, too fast. Brown asked Uyeda about it, bringing up the unprecedented number of proposals issued this year – which have been accompanied, in most instances, by relatively truncated comment periods.

The commissioner acknowledged what the influx of new rules could mean for advisors, adding that he always tries to consider the burden they could create for industry participants, especially on smaller entities.  

“In a vacuum, one rule is not an issue,” he said. “But if you’re dealing with 12 of them at the same time, I can appreciate how that can be terribly frustrating for someone who is essentially running a small business.” 

The Impact Regulatory Burdens Have on Consolidation  

When asked about the ongoing consolidation trend in the industry, Uyeda said he was worried about the emergence of a barbell effect. He says he now sees large advisors and firms controlling a huge number of assets on one end and niche specialists who are hard to replace on the other. Everyone else in the middle is getting squeezed, he said.

Part of the reason that’s happening, he conceded, was burdensome regulations.

“Let’s say you have a great book of business but are unhappy with your current firm and think you can do better on your own,” he said. “But given some of the regulations you must comply with, you may not be able to create enough scale to make such a move worthwhile.”

He brought up the SEC’s early enforcement actions regarding its new marketing rule to support his point. All, he noted, involved small advisory firms.

That troubled him, he said, partly because the message it sends is that there’s a high barrier of entry for new professionals trying to enter the industry, meaning the barbell effect will only get worse.

Conflicts

When Brown asked Uyeda to comment on a proposed rule regarding conflicts associated with firms using AI-enabled tools, the commissioner discussed the issue of conflicts in general.

Too often, he said, the phrase “conflict of interest” has negative connotations. Conflicts are always present, he said.

Nearly every market participant – in every industry – is motivated by profit when they offer a good or a service. Financial services is no different, even as it is sometimes treated as such. In his mind, therefore, the issue isn’t whether conflicts exist. It’s managing them.

“In my view, an advisor should disclose the fees they charge and make it clear what services cost and then leave it up to the [client] to decide whether it’s worth it.”

Cost, Uyeda stressed, isn’t everything.

“Yes, one business may charge more for something, but it could be because they provide better service.”

We appreciate Commissioner Uyeda spending some time with us at FSI Forum & Capitol Hill Day this year. It’s always valuable to hear directly from the people who help craft our industry’s regulations.

Further, we sincerely thank all the members who attended the dual events. We hope you found them informative and enriching. We look forward to seeing you again in 2024.