'Natural Organization'
Investment advisers must uphold a fiduciary duty to put their clients' best interests first, generally charge fees and may provide services ranging from saving for retirement to tax planning. Brokers usually are held to a suitability standard that only requires that advice meets their clients' needs when a product is sold. They generally charge commissions. The number of registered investment advisers increased by almost 40 percent to 11,888 advisers as of Sept. 30 since October 2004, the SEC report said.
"The likelihood of an SEC government solution working and working consistently in a difficult budget environment I think is low," Ketchum, 60, said in an interview last month on the 48th floor of the agency's New York office. The current environment "is simply not an appropriate level of investor protection."
Finra is a "natural organization to be part of the solution" because of its infrastructure and technological capabilities and the fact that most advisers are affiliated with broker-dealers already, Ketchum said.
Upping Enforcement
The regulator would need as many as 200 more people to do the job and would create a new board to represent members of the adviser community, he said. Michael Oxley, the former congressman who co-sponsored the Sarbanes-Oxley Act of 2002, registered earlier this year as a lobbyist for Finra to advance its case. The regulator spent $300,000 in the first quarter lobbying Congress on issues including adviser oversight.
Finra has stepped up its enforcement efforts this year. From January through May, fines levied by Finra increased by 118 percent to $28.1 million compared with a year earlier. During the first five months of 2009, in the wake of the financial crisis, fines were $30.5 million. The number of disciplinary actions taken this year through May was 463, the most in at least five years.
Morgan Keegan, a division of Birmingham, Alabama-based Regions Financial Corp., agreed to pay about $200 million to settle investigations into subprime mortgage-backed securities by the SEC, Finra and state regulators, the company said last week. Morgan Keegan's actions may have resulted in $1.5 billion of losses, Joseph Borg, director of the Alabama Securities Commission, said during a call with reporters. The investigation was a "collaborative effort," said Nancy Condon, a Finra spokeswoman.
Structured Products
The regulator has been "digging deeper" into "areas of concern" such as structured products and private placements, Ketchum said last month at Finra's annual conference in Washington. Finra has fined brokerage firms for misleading investors about the safety of "principal-protected" notes and ignoring signs of fraud when selling high-yield securities issued by Provident Royalties LLC and Medical Capital Holdings Inc.
Investors lost about $2.5 billion on those three products after Lehman Brothers Holdings Inc. failed and the SEC shut down Provident and Medical Capital. Finra has fined the brokers who sold those securities a total of about $3.25 million, according to the regulator's data.
$6 Million Restitution