Madoff scandal puts reps on the hot seat - Pressure on Investment Advisors after fraud

Madoff scandal puts reps on the hot seat
By Bruce Kelly
January 29, 2009, 11:49 AM EST

Bernard Madoff’s alleged $50 billion Ponzi scheme has put financial advisers on the hot seat.
Investment advisers and registered reps are “extremely angry over the Bernie Madoff situation,” said Dale Brown, president and CEO of the Financial Services Institute Inc., an Atlanta-based industry organization that represents independent broker-dealers and reps.

“Clients are calling and saying, ‘Who’s looking over your shoulder?’”

Mr. Brown made his remarks this morning to reporters in San Antonio, the site this year of the FSI’s annual meeting.

The investigation into what is potentially the single-largest fraud in U.S. history has put some advisers in the headlights, he said.

“It’s undermined the trust that our members have built with their clients,” Mr. Brown said.

Advisers are also annoyed over that regulators have focues on such bread-and-butter issues as 12(b)-1 fees and missed a huge fraud, he said.

Meanwhile, the FSI has seen its membership of individuals drop to 10,000 reps and advisers at the end of 2008, from 12,000 a year earlier, Mr. Brown said, blaming the drop on the timing of the organization’s renewal drive, which occurred in the fall during the stock market’s calamitous dive.

He said that concern about the tens of billions of dollars from the Troubled Asset Relief Program going to banks and holding companies that compete against independent broker-dealers has been overshadowed by the Madoff scandal.