The Financial Services Institute (FSI) has thrown its hat--albeit reluctantly--into the ring and said the Financial Industry Regulatory Authority (Finra) should be the self-regulatory organization monitoring registered investment advisors (RIAs).

FSI's chairman of the board, Joseph R. Russo, endorsed Finra in a two-page letter issued to institute members last week. However, the letter also suggested that the support may be more pragmatic than idealistic.

Two polls conducted in the past year indicated that 75% of FSI's members agreed with the position. "That being said, even those who see the logic behind it aren't thrilled with giving Finra greater reach and responsibility," Russo wrote.

Washington D.C.-based FSI represents an estimated 35,000 registered investment advisors and over 100 broker-dealers.

"We are by no means oblivious to the many challenges Finra creates as our industry's principal regulator, nor are we saying there won't be problems with Finra in this expanded role," Russo added. "What we do know is that there is a political reality that FSI must deal with on behalf of our members--and that reality is called the Dodd-Frank Act."

Russo said the Dodd-Frank legislation had to address the current regulatory gap: Only 8% of all RIAs were examined by the Securities and Exchange Commission last year. "That's an average of [being examined] once every 13 years, and nearly 40% of RIAs have never been examined," Russo said.

Now that Dodd-Frank is established, he said, the regulatory gap can be closed. "Is it going to be the SEC, Finra or a brand new bureaucracy no one knows," he said. "For the FSI, the answer wasn't pleasant, but it was simple: the devil we know."

Russo said choosing Finra "will help level the playing field, eliminate an unfair competitive advantage and better protect consumers."