REMARKS OF DANIEL J. LUDEMAN
2005 Chairman, Securities Industry Association
SIA Annual Meeting, November 10, 2005
Thank you, Marc and good morning.
* * * * *
It’s great to be back in Boca after a very eventful and productive year.
It has been my privilege – and really quite an honor for me to serve as chairman of this remarkable association. Unlike some other organizations, the SIA offers its chairman more than just a “bully pulpit,” and I’m very proud of what we accomplished together this year.
We didn’t just put forth ideas. We developed new programs and I believe we made meaningful progress in addressing the challenges our industry faced. Perhaps more important, we helped to shape our future.
We no longer see new threats to public trust and confidence emerging on a daily basis.
On the regulatory front, we took positive steps forward.
Across the industry, there are fewer new regulatory actions…
Operational complaints are down…. industry employment is up… and we’re on track to have one of our best years ever in terms of financial performance.
In short, I’m proud that our industry is back to doing what it does best – creating opportunities for its clients.
And that’s due in large measure to the extraordinary effort made by our member firms. I have been tremendously impressed and truly inspired by the sheer numbers of people – literally thousands -- who have contributed their time, talent and creativity to the betterment of our industry.
Our industry made progress this year because so many dedicated people were willing to roll up their sleeves to get the job done – no matter what. And I thank you for that.
It has also been my pleasure to work closely these last 12 months with the SIA staff. They are, without a doubt, among the most knowledgeable, capable and hard working people I’ve ever worked with, and I want to ask you to join me in thanking them for all they do for us.
The SIA’s board and staff this year adopted a deliberate, plan-based approach to their work, that includes clear goals, specific action plans and clear accountability -- making our association more effective than it has ever been.
The SIA does many things well, but none better than serving as a forum for developing consensus from disparate views… and as a medium through which our industry speaks with a single voice.
It also provides extraordinary opportunities for member firms to share ideas and best practices -- and that’s exactly what we will be doing during the 16 industry forums we’re holding here in Boca this week.
It’s a reflection of the SIA’s vigor and effectiveness that attendance at this meeting is the highest it’s been in nearly 10 years – more than 800 people.
What’s more, SIA membership increased this past year for the first time since 1997. Few if any industry organizations are experiencing that kind of growth – especially in a consolidating industry. I think it’s remarkable, and it underscores SIA’s efforts to seek broad representation from firms of all sizes – large and small – so that everyone’s voice can be heard.
I’d like to welcome to our ranks the 100 firms that have joined us so far in 2005.
When we gathered last year, I laid out an agenda for our Association intended to enhance our ability to serve, protect, and strengthen public trust in our industry, in our firms, and in our markets. You may recall the areas we focused on in 2005 were:
First, our industry’s commitment to clarity;
Second, retirement and saving;
Third, achieving a permanent reduction in the capital gains and dividend tax rate;
Fourth, striving for more efficient regulation;
And, finally, enhancing investor education and diversity.
Of these, none was more central to restoring public trust and confidence in our industry than our commitment to clarity.
Our industry took a huge step this year when we adopted the first industry-wide Investors’ Bill of Rights and Responsibilities.
I’m very proud of this document. It’s an extraordinary testament to the power of our Association. It provides a clear accounting of our responsibility to our clients to provide quality service, full, clear reporting and prompt resolution of any problems.
More notably, for the first time, it also clarifies the roles and responsibilities of the investor, to plan carefully -- to stay informed about the risks and rewards of their investments.
We didn’t stamp it with an expiration date. It is a permanent covenant between our industry and those who rely on us. As such, it strengthens the foundation on which trust is built -- the kind of trust that is the bedrock of authentic relationships.
I am pleased to tell you that your board this year amended our by-laws to endorse this Bill of Rights, and that more than 100 firms – representing 90% of the financial advisors in our industry – have already adopted it and shared it with tens of millions of clients.
* * * *
Even as we gave form and substance to our commitment to clarity, we pursued our second priority – to help Americans prepare for retirement by saving and investing more.
After the hurricane season we had this year, it occurred to me that we may be watching a catastrophe of another sort unfolding before our eyes.
We know that 76 million baby boomers are getting ready to retire.
We know full well that two thirds of Americans have not saved enough – and are still not saving enough to retire at the standard of living to which they are accustomed, or to which they aspire.
We also know that unless we address this disparity we will be facing what could be the most serious social issue our nation has ever faced.
But we can alter the course of events if we act now. There are a number of things we can do and we have to do all of them.
Education is crucial, but not enough.
Social Security reform is part of the solution – but not the entire solution.
And savings incentives are necessary, but they won’t do it by themselves.
This year we have pressed forward on all three fronts and we made some real progress.
- We’ve worked to inform and educate investors, legislators and the media through research reports, white papers and educational brochures.
- SIA remained active in the debate over Social Security reform throughout the year.
- Expanded retirement and savings incentives are part of the Budget Resolution under consideration in the House of Representatives and we continue to press to make them permanent.
- ERISA modernization is moving in the House and is pending in the Senate.
There is much more work to do but we’re moving in the right direction. And we’ll be hearing more on retirement a little later today from Ken Dychtwald of Age Wave and also from Ellyn McColgan of Fidelity tomorrow.
* * * * *
A third priority for our industry this year has been to make the current tax rates on capital gains and dividends permanent.
The SIA staff and member firms did a tremendous amount of work this year to convey the implications of failing to act.
Back in 2003, as you may remember, SIA was a leading proponent of reducing the tax rate on Capital Gains and Dividends. In the first year after the lower rates went into effect, almost 1,000 companies raised their dividends and more than a hundred more started to pay them for the first time.
More recent data points to extremely favorable results for our economy. The lower rates have contributed to the creation of 4.1 million jobs, economic growth that has averaged more than four percent, and, for 24 million investors, 2004 tax savings averaging nearly $1,000.
Without certainty in the tax code, it is difficult, if not impossible, for people to decide how to invest.
Pre-Katrina our position had gained traction in Congress, including legislation sponsored by my good friend and Congressman, Eric Cantor of Richmond, Virginia. His bill included 145 co-sponsors.
Even as we’re gathered here, legislation is moving through Congress that would extend these rates. However, SIA needs your participation. Please don’t wait. Contact your Members of Congress as soon as you can, urging them to pass this necessary and vital legislation.
* * * * *
Our fourth priority has been to achieve efficient, effective regulation of our industry – regulation that does what it’s supposed to do: protect investors while keeping our capital markets competitive globally.
That starts with a single, strong, well-funded primary regulator, and we believe that needs to be the Securities and Exchange Commission.
Our hope is that the Commission will help to restore balanced supervision that focuses on providing advice, rather than only on regulating through enforcement.
We’re working with Chairman Cox to strengthen the commission in that role. We’re very pleased that he’ll be joining us tomorrow and we look forward to hearing from him.
SIA has been an active and successful participant in a wide range of specific regulatory initiatives throughout the year. Our impact is evident in the rules and regulation we see… and as well as in the ones we don’t see.
For example, we see important modernization to the 1933 Securities Act. These reforms were adopted by the SEC this past summer, and they help bring industry regulation into the 21st century. A case in point -- they allow the delivery of prospectuses via the internet.
We see new rules governing market structure, which clearly reflect SIA’s constructive and informed feedback to the SEC.
We see regulation that preserves fee-based brokerage services -- a tribute to the effort made by SIA and its members to offer alternative compensation arrangements to investors. And in this area, we continue to urge the SEC to clarify the interpretation of this regulation to assure that it does not impact the delivery of professional financial advice and guidance to our brokerage clients.
We also see the results of the hard work done to achieve greater uniformity in state regulation. Nine states and the U.S. Virgin Islands have now passed Uniform Securities Act legislation -- four of them in the last 12 months.
We see the North American Securities Administrators Association, the New York Stock Exchange and the NASD all publishing principal considerations to be taken into account when deciding on enforcement action. This should help to alleviate the “piling on” effect we’ve seen in recent years.
These are all very positive developments.
What we don’t see is the kind of knee jerk reaction to mutual fund reform that was being considered -- including a 4 p.m. hard close that might have had a significant negative impact on all firms. Again, this is the result of your Association’s active participation in the debate as a voice of moderation.
Looking ahead, we hope to see steps to reform our self-regulatory structure, and SIA is working with the NYSE, the NASD and the SEC to explore a hybrid model for self-regulation.
This would go a long way toward reducing duplication and redundancy, and it would also address conflicts of interest between the for-profit exchanges and regulators.
Overall, I’m very pleased with the progress we made this year toward creating an industry environment in which innovation and competition can thrive at the same time that investors are protected.
*******
Our fifth priority in many ways has the greatest implications for our industry’s long-term viability and success. It is to take a leadership role in investor education and increasing diversity.
The Stock Market Game is a very effective way to stimulate interest in our industry among younger students of diverse backgrounds.
More than 9 million students have taken part in the game since it started in 1977, and its impact is growing. This year, participation increased 17%, and nearly 500,000 students from schools in all 50 states and from all walks of life took part -- and we hope to reach 1 million students a year by 2010.
We pursued our Diversity initiative with vigor in 2005, and I want to commend our Diversity Committee for all they do to help us become more like the world in which we live and work.
In September, we held our first-ever Human Resources/Diversity Conference. It was a tremendous success. In a sense, calling it a Human Resources conference belies its purpose. The conference was really about viewing humans, not as resources, but as people – each person distinct from one another.
I’m a big believer in the old adage that if you can’t measure it, you can’t manage it. So, to better gauge our diversity progress, we made some adjustments this year to our diversity survey. As a result, we gathered much more meaningful information. Forty-eight firms took part in the survey this year, representing firms of all types and sizes, and from all parts of the country.
I am glad to say that overall, while we have more work to do, we continue to see an encouraging trend toward increased representation by women and people of color in our industry.
Also tomorrow morning, we’ll acknowledge firms that have demonstrated leadership in areas critical to achieving greater diversity – including innovative approaches and sustained commitment.
* * * *
Whenever we look back on the past year – whether we’re talking about diversity or any of our other priorities -- there’s a strong temptation to tick off a list of accomplishments. And I guess I did that to some extent this morning.
But while we can check off a lot of boxes, that’s not really what this past year was about. It was about putting our industry back on firm footing, restoring lost confidence and setting it in a new direction. And the positive trends I cited at the outset show that we’re succeeding.
I have never been more confident in our future than I am today.
But that confidence comes with a caveat.
When things are starting to look good, it’s easy to become complacent. And we just can’t afford to do that.
Our industry is inherently focused on growth. People in this business are entrepreneurial by nature. They thrive on creativity, on deals and on the prospect of growth for their clients and for their firms.
That’s the fun part. And that’s fine. We can’t lose that. It’s who we are. It’s what made us successful. But in a sense, the very characteristics and skills that produced our success may also have been our biggest handicap as the environment in which we work changed.
In our single-minded focus on growth, our industry was perhaps not as well equipped -- or as well-prepared as we needed to be to do something else important. And that is to exercise the controls and implement the processes required for consistent, disciplined execution in accordance with the rules of our industry -- less fun, sure, but no less essential to our success.
Control… and growth.
On the face of them, they seem diametrically opposed… But I maintain that effective controls contribute to operating excellence, which in turn results in better client service… fewer operational complaints… lower settlement costs.. better financial results and, ultimately in growth.
Control… and growth.
It’s not an easy balance to strike. It requires a lot of effort and continued vigilance for our industry to stay as entrepreneurial as we need to be while remaining disciplined and alert, lest issues arise and catch us off guard.
We’ve made way too much progress and come way too far to ever let that happen again.
****************
I’m very proud to be part of this industry. It means a lot to me. When I started as a broker more than 25 years ago, I had a pretty simple goal – to make a living.
In the intervening years, I’ve run a capital markets organization. I’ve led an asset management company. And today I have the privilege of leading one of the nation’s largest brokerage firms.
But in my career – and in my life – I’ve never had an opportunity like the one I’ve had this year… the privilege to serve as SIA chairman… to share my experiences and my points of view with other leaders in our industry… to help make our industry stronger, better, more trustworthy… the chance to help shape our industry so that we can all create opportunities for our clients and, in doing so, run, protect and grow our nation’s capital markets.
It has been a phenomenal experience – and one that I’ll treasure always and never forget.
The securities industry is among the guardians of the nation’s wealth, and that position imbues us with tremendous responsibility as well as a collective voice that carries weight and credibility.
I encourage all of you to take the opportunity to add your voice to the mix – and to learn from each other by becoming more active in your industry’s affairs.
I look forward to remaining active in our association and to working closely with James Gorman as he assumes the SIA chairmanship tomorrow. And before I relinquish the chair to James, I want to ask one thing of you.
And that is, please don’t ever take for granted the extraordinary industry we’re part of…
We are part of an industry that is growing…
An industry that is a crucial component of our national and global economy…
An industry at the hub of the wheels of commerce…that makes it possible for companies to grow and for individuals to achieve their life’s aspirations.
An industry that is committed to integrity and excellence.
And one that is far too precious and far too important to ever again risk losing the trust that is essential to our well-being.
Great things lie before us and I look forward to working with you to create a vibrant, prosperous future for our industry and for our nation.
Thank you.
