The next time regulators hear from the investment industry that regulation is suffocating the business or that proposed reforms will require years to implement, recalling how well the industry is functioning would be worthwhile.
The latest securities industry performance data indicate that the investment business is thriving. Somehow, in the face of weak economic conditions and allegedly stifling regulation, the retail investment segment, in particular, is booming. At both big firms and boutiques, the industry is generating billions of dollars from ordinary investors, pushing overall profits back to their pre-global financial crisis levels.
Gone are the days when retail brokers were viewed as the industry’s poor cousins. Now, it’s the institutional traders and investment bankers who are providing comparatively small contributions to the industry’s bottom line, while the retail side is producing substantial, fast-growing revenue.
Given what’s now at stake, the investment industry’s dogged defence of the status quo is not surprising when regulators contemplate any change to retail standards of conduct or disclosure requirements. Regulators should not be fooled.
Clearly, the industry has not been derailed by the introduction of the second phase of the client relationship model (CRM2) or by the advent of point-of-sale mutual fund disclosure. A “best interest” standard and a ban on embedded commissions won’t spell the end of the business, either. Undoubtedly, the industry will adapt and flourish.
Remember that the industry pulled off a significant technical feat this past month, seamlessly reducing the settlement cycle to T+2 from T+3 without a hitch. If regulators had mandated such a move on the grounds of investor protection, industry opposition probably would have been fierce. Yet, when the industry is motivated, it can deliver a major, industrywide improvement with very little fuss.
When regulators face complaints about the regulatory burden, they should keep in mind just how capable this industry is. If regulators aim to do what’s right for investors, the industry can make it happen.
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