Investment advisor groups recoil at the thought. Their take is that SROs have inherent conflicts of interest, and they specifically fear that FINRA would try to weaken the fiduciary standard. Mohrman-Gillis from the CFP Board says financial planning groups see a huge gap in regulations where financial intermediaries are calling themselves planners and advisors without proper professional credentials. "They don't have a baseline competency standard and often are selling a product and using the title of planner/advisor to make the client think they're acting in their best interest when they're basically selling products."

Her solution: Can the SRO idea and establish a financial planning oversight board under the SEC's authority that would be similar to other boards that set standards for lawyers or doctors. "The goal is that planners registered with this board tell the public that they meet certain baseline competencies and are required to adhere to the fiduciary standard of care," she says.

Instead of having an SRO, Tittsworth from the IAA wants adequate funding for the SEC so that it can do its job. "There's a lot of different ways to get there," he says. One possible solution came from a proposal in October by Congressman Paul E. Kanjorski (D-PA), chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises. Among other things, it would impose user fees on investment advisors to pay for SEC inspections.

"I think our members would rather pay the SEC directly than have an SRO," Tittsworth says. Another solution, he adds, is for the SEC to increase the $25 million in assets threshold that separates federally registered and state-registered investment advisors.

The National American Securities Administrators Association (NASAA) wants the states to regulate all investment advisors with assets under $100 million. "It would allow the SEC to use its limited resources to regulate larger firms," says Denise Voigt Crawford, Texas Securities Commissioner and president of NASAA. "And it would be more efficient because it's easier and less money for me to send a team to look at an investment advisor in Texas than to have the SEC send a team from Washington, D.C."

The Advisers Act authorizes the SEC to increase the dollar threshold. In a May speech, SEC Commissioner Luis Aguilar said raising the threshold to $100 million would trim the number of SEC-registered advisors by almost 45%. The flip side, he acknowledged, is that state budgets are stretched thin and that the regulatory burden would "merely move the problem from the SEC to the states."

Unmandatory Arbitration
The Obama blueprint for reform recommends legislation that would grant the SEC authority to prohibit mandatory arbitration clauses in broker-dealer and investment advisor contracts with retail customers. While it acknowledges that arbitration sometimes is a viable way to handle disputes, the report says that "mandating a particular venue or upfront method of adjudicating disputes-and eliminating access to courts-may unjustifiably undermine investor interests."

But before authorizing changes in arbitration, the SEC would have to study whether these clauses have harmed consumers by preventing them from seeking more effective ways to redress claims.

"We believe you shouldn't have to sign a mandatory contract to open a brokerage account," says Crawford. "You should have the option to go through FINRA arbitration, another forum or to go to court. A lot of these situations could be resolved in small claims court that might be better for investors because a lot of studies show that FINRA-run arbitration isn't a fair forum." 

W. Hardy Callcott, the Bingham McCutchen attorney, believes that arbitration is better for customers because it's faster and customer win rates are better than in court cases. Nonetheless, he says the prospects of imposing an industrywide fiduciary standard--coupled with a stricter interpretation of that standard in courts--could significantly impact broker-dealers.

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