Scrutinizing FINRA’s Budget: Rational Spending or Excess?

A few years ago, AdvisorLaw dug into FINRA’s 2021 annual report and budget and posted a comprehensive breakdown of FINRA’s fee increases at the time. Specifically, we noted how there seemed to be little correlation between its purported mission of “protecting investors” and its spending, which includes enormous salaries for FINRA executives.

Now, with multiple outlets causing waves over a report of upcoming additional fee increases for FINRA members, let’s revisit this by breaking down the data in the combined 73 pages of FINRA’s 2024 budget and industry snapshot. With a large operating loss looming, FINRA will be submitting additional proposed fee increases to the SEC later this year, for 2025 and beyond.

Below, we distill FINRA’s data, spanning from 2017 to 2023. Armed with this information, we can help advisors objectively assess the value of FINRA’s proposed fee increases for the 2023 to 2024 period. 

If these highlights lead to infuriation, know that AdvisorLaw is here to help. We will offer a $500 credit on any new RIA formation for current brokers who reference this article. 

Let us begin at the top.

FINRA’s Executive Compensation (2017-2023)

	2017	2023	Change
FINRA CEO – Robert W. Cook	$1,451,523	$3,839,146	+165%
FINRA CFO – Todd T. Diganci	$1,477,355	$1,696,480	+15%
FINRA CIO – Steven J. Randich	$1,353,048	$2,045,813	+51%
FINRA CLO – Robert L. D. Colby	$1,193,137	$1,444,194	+21%

These numbers are absolutely staggering for a regulator that describes itself as “nonprofit.”

If both FINRA and the SEC are in the business of protecting investors and maintaining efficient markets, and FINRA is literally overseen by the SEC, then why does SEC Chairperson, Gary Gensler, make a reported $400,000 per year, while Robert Cook makes nearly $4 million per year?

What can be so incongruent in their responsibilities, workload, or mission of protecting essentially the same pool of investors that would require one’s salary to be 10 times that of the other?

FINRA’s Budgetary Bloat (2017-2023)

	2017	2023	Change
FINRA Operating Expenses	$876,000,000	$1,232,000,000	+41%
FINRA Employee Count	3,618	4,200	+16%

	2017	2023	Change
FINRA Registered Reps	630,251	628,392	-0%
FINRA Member Firms	3,726	3,298	-11%

Perhaps indicative of why many in our society harbor a special disdain for bureaucracy (although FINRA is technically a corporation empowered by the government—an entirely separate dilemma) is the fact that FINRA has managed to expand its budget and headcount while simultaneously overseeing a smaller number of firms and representatives. 

According to AdvisorHub, “…Finra reported a net operating loss of $119.1 million in 2023, nearly double the $60.2 million loss from 2022.” The article continues, “Finra also used drawdowns from its $1.7 billion investment portfolio to cover some increased expenses but said that its costs would likely continue to outpace revenue increases for several years.”

If FINRA is spending more than it generates through fees and returns on its investments (and is forecasting that to continue), and the number of reps and firms dwindles, then why the budgetary growth? Is the bureaucracy manufacturing its own problem?

To be fair, perhaps FINRA would argue that there are simply more “bad actors” these days, meaning its budgetary expansion may just be a natural byproduct of its Herculean efforts to protect the investing public.

Luckily, FINRA has published historical data on enforcement.

FINRA’s Enforcement Erosion (2017-2023)

	2017	2023	Change
Investor Complaints	3,002	11,003	+266%
Disciplinary Actions	1,369	610	-55%
Firms Expelled/Suspended	49	9	-82%
Advisors Expelled/Suspended	1,225	435	-56%
Restitution Ordered	$67,000,000	$7,500,000	-89%

So while FINRA has been busy expanding its budgetary and regulatory footprint, almost every enforcement indicator has seen an alarming drop. 

Of course, one might argue that FINRA has effectively rooted out all of the bad actors. Could it be that FINRA is simply a victim of its own stringent enforcement? If that is the case, then how have investor complaints experienced a meteoric rise? And if all of these bad advisors are gone, why the ceaseless growth in FINRA personnel headcount?

Instead of focusing on hypotheticals, let us fixate on the absolute result of FINRA’s enforcement efforts—making harmed investors whole again through monetary restitution.

In 2023, FINRA received over 11,000 investor complaints, filed over 600 disciplinary actions, and barred or suspended over 400 individuals. Imagine, if you will, the sheer time, resources, business interruption, and attorney defense costs that went into these cases. 

Well, FINRA proudly displays the fruits of its labor on its website: 

Yes, $7.5 million.

That’s around $681 per customer complaint.

That’s around $17,241 per barred or suspended person rooted out by FINRA. 

In fact, FINRA ended the year having paid less in total restitution than its top four executives’ compensation. 

FINRA’s Revenue Ramp-up (2023-2024)

	2023	2024	Change
Gross Income Assessment	$262,000,000	$430,000,000	+64%
Personnel Assessments	$102,000,000	$121,000,000	+19%
Registration Fees	$83,000,000	$101,000,000	+22%

These substantial fee increases are taking effect this year, with proposals for additional hikes beyond 2024 already submitted to the SEC. From a basic analysis of data, FINRA’s enforcement activities seem to have significantly decreased, while executive compensation has increased—despite FINRA overseeing a smaller number of firms and advisors. Additionally, the recent dismantling of FINRA’s arbitration forum has deprived innocent advisors of a crucial means to clear their names. Services that directly benefit good, honest advisors are noticeably declining.

AdvisorLaw has been representing advisors on both sides of the regulatory landscape (SEC/FINRA) for nearly a decade. Registered representatives might want to reconsider which regulator they wish to support and be governed by. With many investors favoring the RIA model of charging a percentage fee based on assets under management, there may never be a better time for brokers to transition. 

After all, if an increase in resources and personnel leads to diminished enforcement, more complaints, and an embarrassing amount of restitution recovered, could it be that FINRA is fundamentally broken? 

Please make it make sense. As a reminder, we will offer a $500 credit on any new RIA formation for current brokers who reference this article.

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