Financial Advisor (November 15, 2017) – The Public Investors Arbitration Bar Association says Finra’s public board members may not truly represent the investing public.

In a report released Wednesday, PIABA criticized Finra for having five current public governors who have ties to securities and advisory firms.

PIABA, which represents investor plaintiff attorneys, says it reviewed publicly available information about Finra’s current public board members as well as public members within the last five years.

“We found that public governors often came to the posts after long industry careers at influential Wall Street firms,” the report said.

Finra’s board, with a majority of public governors, is designed to avoid undue influence from the industry it regulates. The board has 13 seats designated for public members, 10 for industry representatives, and one seat for Finra’s chief executive officer.

But PIABA says several public members appear to be too close to member firms. It faulted five current public governors specifically:

• William Heyman. Currently chairman of Finra’s board, Heyman has a long career in the brokerage industry and is now chief investment officer for The Travelers Companies. He also serves on the board of Bank Leumi USA, which has a broker-dealer subsidiary, the report said.

• Carol Anthony Davidson. Davidson is on the board of Legg Mason, whose subsidiary Legg Mason Investor Services, distributes the company’s funds.

• Rochelle Lazarus. Lazarus is on the board of the Blackstone Group, the alternatives manager, which has multiple Finra-member subsidiaries, the report says. Lazarus is also chairman of the Ogilvy & Mather advertising firm, where she was formerly the chief executive. In 2015, Ogilvy created Finra’s BrokerCheck advertising campaign, PIABA said.

• Joshua Levine. Levine has had a long industry career, with stints at Morgan Stanley, Deutsche Bank, and as chief technology and operations officer at E*Trade. Levine is listed as managing director of Kita Capital, a consulting firm whose website lists clients such as CapitalOne and WisdomTree.

• Eileen Murray. Murray serves as the co-CEO of Ray Dalio’s Bridgewater Associates, the $150 billion hedge fund. Murray has also worked at a number of big Wall Street firms.

The PIABA report adds that Randal Quarles, who recently resigned from the Finra board after being nominated and confirmed as a Federal Reserve governor, co-founded the Cynosure Group, a private equity firm, which has invested in several investment advisory firms. Quarles was also a partner at the Carlyle Group. In addition, PIABA faults him for serving on the board of the U.S. Chamber of Commerce, which has been a vociferous critic of the DOL’s fiduciary rule.

“An SRO doesn’t work if it doesn’t have a majority of board members advocating for the public,” said Andrew Stoltmann, PIABA president and co-author of the report, on a call with reporters Wednesday.

“It’s particularly troubling when [public Finra board members] are on boards of corporations that have Finra-member subsidiaries” such as Legg Mason and Blackstone, said Benjamin Edwards, associate professor of law at the University of Nevada, Las Vegas, and co-author of the report.

Under Finra by-laws, public governors must have “no material business relationship” with a broker-dealer. That should include serving on the board of a firm that has Finra-member subsidiaries or affiliates, or distributes financial products through B-Ds, PIABA said.

Finra already excludes from its public arbitrator list people who are affiliated with mutual funds and advisory firms, the report said.

PIABA also hit Finra board members for serving on too many other boards, and urged Finra to establish limits to prevent such “overboarding.”

The plaintiffs’ attorney group wants to see Finra appoint as public governors investor advocates who hail from consumer groups, state regulatory agencies or PIABA itself.

“Finra likely doesn’t want true advocates who might rock the boat,” said Stoltmann, a Chicago-based plaintiffs’ attorney.

Lack of investor advocates on the board “may just be group replication,” Edwards added, that is, a tendency to nominate directors who look like current members.

In a statement, Finra spokeswoman Michelle Ong said that every Finra governor, regardless of classification, “is responsible for serving in an unbiased and objective manner, and voting on matters for the good of the investors, industry and marketplace.”

Ong added that earlier this year Finra sought comment on its engagement programs and transparency, including with respect to board governance.The Public Investors Arbitration Bar Association says Finra’s public board members may not truly represent the investing public.