If a self-regulatory organization for RIAs is coming, the Committee for the Fiduciary Standard says an upstart SRO should be part of the discussion.
In a statement released on Monday, the fiduciary standard advocacy group said any SRO for investment advisors should be an RIA-only SRO that operates under the fiduciary standard of care, as opposed to the likely alternative of oversight by the Financial Industry Regulatory Authority, the broker-dealer SRO that regulates under the suitability standard of care.
The only other applicable SRO at this point is the Self-Regulatory Organization for Independent Investment Advisers, or SROIIA (pronounced "sir-oy-uh"), a fledgling SRO started last month by two University of Mississippi law students and one of their professors, Mercer Bullard, a former Securities and Exchange Commission assistant chief counsel and longtime advocate on securities and compliance issues. SROIIA said it would regulate advisors under the fiduciary standard.
In its statement, the Committee for the Fiduciary Standard said it welcomes SROIIA's entry into the market and that it looks forward to the development of its nascent mission as an SRO for investment advisors.
First and foremost, the fiduciary group says, it wants the SEC to maintain its role as the regulator of RIAs, and that Congress should provide the agency with either a self-funding mechanism or sufficient multi-year funding appropriations to enable it to do its job.
But Knut Rostad, compliance officer at Rembert Pendleton Jackson in Falls Church, Va., and chairman of the Committee for the Fiduciary Standard, says the group is preparing for a potential SRO by showing its support for SROIIA. "It's widely believed that Congress will grant authority for an SRO for advisors," he says. "I view that as conventional wisdom."
SROIIA was created by two students, T.J. Collins and Tyler Roberts, as part of a project with the Business Law Society, an organization of Ole Miss law students started by Bullard to give law students experience in projects dealing with current events and real-world applications.
SROIIA's coming-out-party press conference in early March generated a lot of buzz, as well as much doubt about whether such a small outfit has the chops or the cash to become a legitimate SRO. It's point well taken by Bullard, who notes that the Committee for the Fiduciary Standard didn't give a full endorsement of SROIIA as its SRO of choice, but merely that it would favor a fiduciary-friendly organization if an SRO eventually becomes reality, and that it welcomes SROIIA's entry into the space.
"SROIIA hasn't filled out its policies and procedures enough to warrant a full-blown endorsement at this point," Bullard says. "I'd be happy if other competitors joined the mix."
Bullard said the Committee for the Fiduciary Standard's press release articulated to the advisory industry the need to have something in place before Congress authorizes the creation of an SRO, which would be under SEC oversight. "Otherwise, Finra will completely occupy the space," he says.