Finra: We're Ready To Be Advisors' SRO
In Congressional testimony last month, the Financial Industry Regulatory Authority stated its case to be the agency of choice to oversee investment advisors registered with the Securities and Exchange Commission.

"We (Finra) would establish a separate entity with a separate board and committee governance to oversee any advisor work, and would plan to hire additional staff with expertise and leadership in the advisor area," Richard Ketchum, Finra's chairman and CEO, told the House Financial Services Committee hearing that discussed a bill proposed by Rep. Spencer Bachus, (R-Ala.), that would set up one or more self-regulatory organizations (SROs) for registered investment advisors (RIAs). Finra is the SRO overseeing roughly 4,500 brokerage firms and 633,000 registered reps. 

William Dwyer, president of LPL Financial and chairman of the Financial Services Institute, exhorted the SEC to establish a uniform fiduciary standard and to retain Finra as an SRO to oversee RIAs. But the latter concept is anathema to industry groups representing investment advisors, who prefer the status quo of being regulated by the SEC and oppose outsourcing that role to another organization.

"[The SEC is] a single, governmental regulator accountable to Congress and the public that has investors' protection as its paramount mission," said David Tittsworth, executive director and executive vice president of the Investment Advisor Association. "We've noted various concerns about Finra and self-regulatory organizations, including their lack of accountability, their lack of transparency, questionable track record, excessive costs and their bias favoring the broker-dealer regulatory model."

The Financial Planning Coalition, in a statement provided to the committee, said creating a new SRO to monitor investment advisors isn't needed. "At a time when the Administration and Congress are working to find ways to create jobs, stimulate economic growth and cut red tape, the creation of a new SRO is an overly broad approach to correcting the narrow problem of the inadequate frequency of examinations of SEC-registered investment advisers," the statement said. The coalition believes that supporting enhanced SEC oversight is the most appropriate solution.

Under a draft bill by Bachus, the committee chairman, one or more SROs would oversee the nation's 11,500 registered investment advisors. Bachus introduced his bill to the committee on Sept. 8. He has stated that under the SEC's current monitoring system, investors who use independent financial advisors may not be sure they're getting certified and qualified financial investment advice because the SEC, on average, reviews such advisors only once every ten years.

The Bachus bill proposes that the SEC have the power to hire a group to monitor, evaluate and certify advisors. His draft says that independent advisors would have to be members of a SRO that would report directly to the SEC.
Last year's Dodd-Frank Act directed the SEC to look into the practices of financial advisors in the wake of the 2008 credit crisis and high-profile frauds such as the Bernard Madoff Ponzi scheme.

The SEC's study concluded that it needs to fix its inability to inspect a sufficient number of investment advisors on a regular basis. The report presented a few options, including using new SEC fees to pay for an expanded inspections program or moving investment advisors under a SRO.

The House isn't done deliberating on the SRO issue and the Senate has yet to address the topic, so don't expect a resolution any time soon.
- Jim McConville

Independent Advisors On The Rise
As part of a continuing trend, financial advisors increasingly are bolting from traditional Wall Street brokerage firms and other financial service employers to become independent broker-dealers and advisors, according to Cerulli Associates.

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