State regulators and independent broker-dealers are expressing concerns about a Finra proposal to drop requirements for B-Ds to supervise the independent RIAs run by their registered reps.
The states want Finra to drop the plan, and independent broker-dealers say they may not want to risk giving up oversight of the advisory activity of their hybrid advisors.
Finra’s proposal, floated in February for comment, would revamp Finra’s rules on outside business activities (OBAs) and private securities transactions, and among other things, drop the supervision requirement if a B-D determines it is unnecessary. Comments were due last Friday.
The proposal “would undermine investor protection,” the North American Securities Administrators Association said in a comment letter.
Brokerage firms, the NASAA said, are “held responsible for oversight of outside investment-related activities for good reason: They have insights into the day-to-day activities of their associated persons and are well positioned to detect potential misconduct that may occur through an unaffiliated investment advisor.”
Instead of “day-to-day oversight” of an investment advisor, there would be “intermittent state and federal” oversight, the NASAA added.
Under the proposal, B-Ds could choose not to maintain books and records related to their reps’ unaffiliated advisory firms like they do now. But state regulators say having that trading data available is useful for both federal and state regulators.
And as the SEC moves to create a best-interest standard for brokerage firms and clarify the roles of brokers and RIAs, the NASAA said, the proposal to segregate oversight “is generally out of sync with the needs of investors and current trends in broker-dealer regulation.”
Independent B-Ds themselves have indicated they might not want to give up supervision of unaffiliated RIA firms because of legal risks.
“Many FSI members have reported that they will continue to supervise their advisors’ investment-related OBAs (particularly, outside investment advisory activities), despite the proposed rule changes,” the Financial Services Institute (FSI) said in a comment letter.