(Bloomberg News) Congress may hand oversight of almost 12,000 investment advisers to Wall Street's self-funded regulator as a cost-saving measure. The price could be paid by investors.

The Financial Industry Regulatory Authority, deputized by the government to oversee brokers, is lobbying to replace the U.S. Securities and Exchange Commission as a regulator of registered investment advisers who manage about $40 trillion. Congress is considering the move as a cheaper alternative to increasing resources for the SEC, since Finra's $877 million budget is paid by the brokers it regulates.

"It's a very bad idea to expand the notion of self- regulation," said Denise Voigt Crawford, former commissioner of the Texas State Securities Board. "They're supposed to oversee the activity of the industry, but they are industry."

Finra, established in 2007 by the merger of the National Association of Securities Dealers and most of the New York Stock Exchange's regulatory unit, has done a poor job of protecting investors, said Crawford, who retired in February after 17 years as a securities commissioner. Fines imposed are usually a fraction of the damages suffered, and Finra fails to share information regularly with state regulators, she said.

The regulator fined members almost $43 million last year, while the SEC, working with a similar budget, issued more than $1 billion in penalties.

The Finra arbitration process is flawed, said Lynn E. Turner, who served as the SEC's chief accountant from 1998 to 2001. Investors who won Finra arbitration awards last year got back less than half of what they sought, data from Securities Arbitration Commentator Inc. show.

Strained Resources

Compensation exceeding $11 million in 2009 for the top 10 Finra executives makes them reluctant to "make waves" in the industry that provides the funding, Turner said. Finra's chairman and chief executive officer, Richard Ketchum, said that level of pay keeps them from losing their best staff.

In a January report required by the Dodd-Frank financial- overhaul bill, the SEC gave Congress the option of naming an outside regulator to strengthen oversight of investment advisers as the agency faces strained resources. Only about 9 percent of advisers registered with the SEC were examined in 2010 because of decreased numbers of agency examiners, the report said.

Advisers are currently required to register with the SEC if they are paid to give retail investment advice about securities and have more than $25 million in assets under management. The limit is scheduled to switch to $100 million next year.