A Contrarian View: Putting EMDRS First
By: Craig Burrows
We certainly had an interesting summer with potential regulatory issues that could have had huge repercussions for our industry. I want to thank our peers, agents, issuers and our associations for coming together as a team to fight for the future of our market. The battle is far from over and we need to continue to be vigilant as this is probably the beginning of more regulations and compliance measures to further decrease our margins, and consequently, investor yields.
What keeps me up at night is contemplating how this happened. Why did regulators target exemptions in the EMD space rather than publicly recognizing less regulated segments such as the NorthWest exemption? Is there a conspiracy to protect the big banks from a growing demand for investments that they do not offer?
So how does our industry assist regulators to protect the investing public? The answer is putting our agents first!
To put it simply, if you have no agents, you have no investors. If you have no investors, there will be no need to regulate a business that is not raising money. Agents are the front line to the general public, and their morale should be an indicator of investor confidence and the need for regulation.
Advisers want to protect their investors’ money. They did not get into the business to lose investor money, or intentionally fail to disclose the true risk of an investment. That is great, most advisors are honest, but are they competent? The industry needs to attract quality advisers that are both honest and competent.
To be competent, advisers should be qualified and focused on our market. In general, the butcher/teacher by day, insurance agent by night, and DR on weekends, is not a successful model for our industry. We need to challenge our Exempt Market EMDs to continue to improve the quality of their advisers. Then we can worry less about regulators investigating advisers that are not dedicated to our industry. Remember, this is real money and real people’s life savings on the line.
Excellence attracts excellence. As an industry, we need to rely more on our own abilities to conduct proper due diligence rather than on third party opinions. For example, it is recommended that EMDs attract partners that have been senior leaders in the banking and financial world. Key people should have the appropriate experience and accreditations to review investment opportunities, so they will have the business acumen to be successful in good and bad times.
After some of the recent dust-ups in the EMD space, top tiered advisers are demanding more from their dealerships and quite frankly, they deserve it. Some say a large network of agents is the best way to attract new investors to our industry. I would offer a contrarian viewpoint: I believe a tighter shelf, with a tighter team of high performing agents, is a better model for issuers, advisers, and investors. By focusing on high performing advisers, one can focus more resources on the due diligence process on a tighter shelf instead of over managing compliance obligations for a non-sophisticated team. A smaller team also provides advisers direct access to the CCO & UDP than just communicating with middle managers.
The best way to protect the investing public and provide a better working relationship with regulators is a real commitment to quality advisers. By providing well vetted investment opportunities with proper KYP processes, we can protect and gain the confidence of top tier advisers that in the end will create confidence in our industry and respect from regulators.