SFAB Email to Small Firms

December 3, 2013

Dear Small Firm Members:

This has been an exciting and productive year for the Small Firm Advisory Board. As the outgoing chair, I wanted to brief you on some of the issues that we confronted, evaluated and commented on over the last year.

We have actively worked to ensure the voice of small firms is represented on various FINRA advisory committees, including the District, Membership, Independent Dealer and Insurance Affiliate, and Fixed Income Committees. The SFAB has also pushed for several years to have more sessions at the FINRA Annual Conference tailored to the needs of small firms. This past May, the conference had more than seven sessions geared directly to our needs. We also hosted a small firm luncheon that was very well attended—over 250 attendees representing small firms from all over the country interacted and connected over lunch.

More recently, we alerted FINRA of small firms concerns that the consolidation of clearing firms has diminished introducing firms bargaining power, and as a result, the small firms believe that in some cases clearing firms are taking advantage of them. We asked FINRA to look at some of the issues you have raised to make sure the clearing firms were not violating any rules.

We have voiced concerns about provisions of revised Rule 8210, which we viewed as including overly broad requests. The issue has been elevated and staff is reviewing the implementation of the revised rule. In addition, the small firm representatives on the FINRA Board of Governors, who are also ex-officio members of the SFAB, are advocating for a number of enhancements to the rule.

We addressed FINRA's proposal for reviewing, retrospectively, all the rules to see if there are any that are out of date, over-burdensome, or if they can separate certain business models from rules that don't apply. We applaud this effort by FINRA and we hope that small firms will contact us with suggestions of rules that they feel no longer apply: particularly rules with direct costs involved in either time or money.

We are constantly on the lookout for changes that may negatively affect small firms and their employees—for example, BrokerCheck changes, recruitment compensation proposal and the expungement process for unnamed parties. On the latter, we argued that the expungement process should be easier for unnamed parties so that costs for the unnamed party were less burdensome.

Other issues discussed with senior FINRA staff have included: issues that small firms have with the SSOI—the supplementary schedule for the FOCUS reports; 12b-1 commissions as allowable assets for net cap computations; the risk control assessment survey; rules for funding portals; use of disgorgement awards for investor education; waivers for the CMA process; and margin requirements for the security based equity swap; among many others.

The thrust of many of our positions is that rules cannot be made on a one-size fits all model. There are many rules that when analyzed do not apply or cannot be applied to small firms. The theory of tiered regulation is finally taking hold. We discussed at the last meeting the special rules that will cover firms that have no retail clientele such as private placement firms. We expanded that discussion to exemptions from certain rules that involve other non-retail firms, etc.

The SFAB was unanimous in its opposition to the move to all public panels in FINRA arbitrations. There were many reasons that were proffered, but the proposal was presented to the Board of Governors.

We have to explain, though, that we are an advisory board and do not have veto power. We argue, cajole and try to convince the FINRA staff, but we are not always successful. We have however affected the final rules in many cases (e.g., the stop order rule).

Aside from the new regulatory proposals, SFAB members bring issues that they have found to be prevalent amongst small firms, either through their own experience or from calls and emails from other small firms. Issues we have raised include: more information about how and when to escalate exam problems—including the names, phone numbers and emails for the district directors, regional directors and the heads of the exams programs; bulk transfer of customer accounts; and, we are still grappling with the PCAOB requirements. 

Your feedback and comments are an instrumental part of the process of ensuring that your voice is heard. Therefore, I'd like to encourage you to contact any SFAB member concerning any rule proposals or FINRA interactions. FINRA encourages us to seek your feedback so we can make sure the small firm voice is heard. All correspondence and communications with us via the email links provided below and on the FINRA website can be confidential and if requested, will be addressed during meetings with FINRA staff anonymously.

The incoming Chair of the SFAB is Patty Bartholomew. I wish her the best of luck and know that she will do an outstanding job as Chair and continue to be a great advocate for small firms.

We want you to know that we are working hard on your behalf to represent the challenges of small firms and to help tailor regulation accordingly. But in order to become even more effective, we need to hear from you. Remember there can be no self-regulation without the "self"—and you are the self.


David M. Sobel
Chair, FINRA Small Firm Advisory Board

About the SFAB

The Small Firm Advisory Board (SFAB) is an advisory committee established by the FINRA Board of Governors in 1998. The SFAB ensures that issues of particular interest and concern to small firms are effectively communicated to and considered by FINRA staff and the Board of Governors. In addition, the SFAB reviews and comments on FINRA rule proposals, and provides guidance to FINRA staff regarding the potential impact of proposed regulatory initiatives on FINRA's small firms. Under FINRA By-laws, small firms are defined as firms with less than 150 registered representatives and make up over 90% of the 4,195 broker-dealers. 

The SFAB strives to make a positive difference in how regulators view small firms and the impact of decisions and initiatives on small firms and hopefully, through these efforts, we will help to reduce burdens and unintended consequences that could be detrimental to our businesses.

To learn more about how the SFAB operates and many issues we've dealt with recently, please watch the free webinar at www.finra.org/webinars.

Small Firm Advisory Board Members

David M. Sobel (Chair)
Abel/Noser Corp.
New York, NY

Patricia S. Bartholomew
Craig-Hallum Capital Group LLC
Minneapolis, MN

Eric A. Bederman
Bernardi Securities, Inc.
Chicago, IL

Christopher Charles
Wulff, Hansen & Co.
San Francisco, CA

John I. Fitzgerald
Leerink Swann LLC
Boston, MA

Timothy Morton
TCFG Wealth Management, LLC
Laguna Niguel, CA

Joseph R.V. Romano
Romano Brothers & Co.
Evanston, IL

David V. Shields
Wellington Shields & Co.
New York, NY

Hardeep Walia
Motif Investing
San Mateo, CA

David W. Wiley, III
Wiley Bros. – Aintree Capital, LLC
Nashville, TN