SRO Proposal: Quixotic Or Galvanizing?
If anything, last month's announcement that two University of Mississippi law students and one of their professors planned to create a self-regulatory organization for independent RIAs electrified the industry. Is this proposal from Oxford, Miss., far from the regulatory epicenter of the nation's capital, laughable or legitimate?
"It's pretty tough to compare a couple of college students to Finra and its long-term experiences as a regulator," says Duane Thompson, a policy consultant at Potomac Strategies LLC, referring to the broker-dealer SRO. "On the other hand, Finra doesn't have any experience regulating fiduciary advisors, either."
The two students, T.J. Collins and Tyler Roberts, came up with the idea for the Self-Regulatory Organization for Independent Investment Advisers, or SROIIA (pronounced "sir-oy-uh") as part of a project with the Business Law Society (BLS), an organization of Ole Miss law students started by professor Mercer Bullard, a former SEC assistant chief counsel and longtime advocate on securities and compliance issues. According to Bullard, BLS was established to enable law students to tackle projects involving interesting current events and give them practical experience with real-world applications. "When T.J. came to me with the SRO project, I warned him this was a major issue and that it would probably get attention," Bullard says.
But this is serious business and not just an academic exercise meant to be résumé fodder for the students, insists Bullard, who says industry groups such as the CFP Board of Standards, the Financial Planning Association and the Investment Advisers Association are sticking their heads in the sand regarding the SRO issue. The SEC admits it lacks the resources to adequately examine RIAs under its domain, and the industry groups want the agency to get sufficient funding so it can do its job rather than have an SRO oversee their members. But such funding is unlikely in the current political climate. Meanwhile, the SEC has recommended that Congress consider authorizing the creation of an SRO for investment advisors.
"I think the odds are there will be an SRO for investment advisors," he says. "Then there's the question of whether non-dual-registrant RIAs would be happy having to join Finra, which is what they'll be stuck with if there's no alternative."
Collins and Roberts planned to survey at least 500 investment advisors on their views on how the industry should be regulated. But running an SRO isn't cheap, with rough estimates to oversee all RIAs costing in the tens of millions of dollars, if not more. Bullard counters SROIIA would examine only independent RIAs. And besides, he adds, "anyone at Finra will tell you that the cost of compliance oversight of fee-only, non-custody financial planners are infinitely less than for full-blown broker-dealers." A Finra spokesperson declined to comment.
Bullard and his students have no illusions it'll take significant resources to make SROIIA operational, and they're talking with strategic partners and developing the framework to get it up and running. Ultimately, it would have to rely on membership dues. Bullard estimates that SROIIA won't have a proper foundation laid until at least autumn. "There are far too many aspects that need to come together before I can say there's critical mass," he says.
It's a bold idea that faces long odds, but at the very least it might fast-forward the SRO process for RIAs. "It could be that taking this kind of radical action by a law school professor and a couple of students could galvanize the bigger players into action," Thompson says.
Refereeing Games, Quarterbacking Clients
Like a lot of guys, John Parry spends his autumn Sundays watching football games. But rather than sitting on the couch with a beer in hand, he's on the gridiron with a whistle in hand as a National Football League referee crew chief. Come Monday, he's back at his day job as as an independent financial planner in Tallmadge, Ohio, near Akron.
The fall is a very busy time for Parry, 45, [pictured, in white cap] who's been an NFL referee since 2000. He and his crew work 15 of the 17 scheduled NFL Sundays, and during the week he crams in NFL-related chores between client work.