Finra's cease-fire on RIA oversight

Regulator is indicating that legislation on SRO proposal might not be revived this year

Feb 10, 2013 @ 12:01 am

By Mark Schoeff Jr.

The brokerage industry's self-regulatory organization hasn't ended the battle to extend its reach to include investment advisers, but it is holding fire.

Last year, the Financial Industry Regulatory Authority Inc. advocated for legislation that would shift adviser oversight from the Securities and Exchange Commission to one or more SROs. That measure bogged down in the House Financial Services Committee, and Finra is indicating that it might not be revived this year.

“We're realistic enough to know that there doesn't appear to be any strong momentum to move forward in Congress, given other priorities,” Finra chief executive Richard G. Ketchum said in an interview last Thursday.

Finra, which has positioned itself as the best choice to fill the SRO role, is not giving up, he said.

Backers argue that an SRO would strengthen investor protection because it has the res-ources to conduct more adviser examinations than the SEC can perform annually.

“We haven't changed our view,” Mr. Ketchum said.

“We've been at this for four years now. The SRO approach is the most effective, least duplicative way to oversee [advisers],” Mr. Ketchum said.

“If an SRO is not approved, the SEC should be given more resources to oversee [advisers],” he said. “Any way you look at it, the SEC needs more resources to address a significant investor exposure.”

A 2011 SEC study mandated by the Dodd-Frank financial reform law indicated that the commission could conduct annual examinations of only 8% of the approximately 12,000 advisers under its aegis at the time. After some adjustments ushered in by Dodd-Frank, the SEC now oversees about 11,000 advisers.

Finra examines the 4,275 broker-dealers registered with it about once every two years.

Finra has spent nearly $2 million lobbying Congress over the past two years, with the SRO bill as its top issue, according to the Center for Responsive Politics.

But that muscle ran into a difficult political reality last year. Rep. Spencer Bachus, R-Ala., then chairman of the House Financial Services Committee, introduced an SRO bill that drew bipartisan skepticism and failed to make its way to a vote by the panel.

In the new Congress, there doesn't appear to be an SRO champion.

Mr. Bachus, who has given up the chairmanship of the Financial Services Committee, hasn't reintroduced the bill. The new chairman, Rep. Jeb Hensarling, R-Texas, hasn't indicated any interest in an SRO bill.

Neither Mr. Bachus nor Mr. Hensarling was available for comment.

FIERCE OPPOSITION

Investment advisers and their lobbying organizations fiercely opposed the SRO bill last year, arguing that it was a costly new layer of regulation.

They instead backed a measure introduced by Rep. Maxine Waters, D-Calif., now ranking member of the Financial Services Committee, that would allow the SEC to charge advisers user fees for exams. She hasn't reintroduced her bill.

Finra's cease-fire doesn't mean that the war is over, observers said.

“It's good news that they're not working the bill on Capitol Hill at this time,” said Duane Thompson, senior policy adviser at Fi360 Inc., a fiduciary training company. “It doesn't mean they're going to forget about it or walk away completely.”

NOT THE END?

Dave O'Brien, owner of O'Brien Financial Planning Inc., agrees.

“This is good news, but it's not the final chapter,” he said. “Not for a minute do I think this is the end of the story.”

Finra may be rethinking its legislative priorities but probably isn't abandoning the SRO idea, said Neil Simon, the Investment Adviser Association's vice president for government relations.

“It is essential that advisers remain vigilant,” he said. “It is essential that advisers educate their members of Congress about what their concerns are.”

A Finra ally on the SRO issue, the Financial Services Institute Inc., said that it is reassessing the political situation but not giving up.

“We agree with Richard Ketchum's analysis of the legislative environment,” FSI chief executive Dale Brown said in a statement. “We plan to continue working with all involved parties to achieve the goal of effective investor protection.”

As Finra moves the SRO issue down its priority list, it will focus on other regulatory topics, such as broker-dealer conflicts, structured products and high-frequency trading.

“Job No. 1 is to be the best independent regulator we can be,” Mr. Ketchum said.

mschoeff@investmentnews.com Twittr: @markschoeff

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Oct 17

Conference

Best Practices Workshop

For the fifth year, InvestmentNews will host the Best Practices Workshop & Awards, bringing together the industry’s top-performing and most influential firms in one room for a full-day. This exclusive workshop and awards program for the... Learn more

Featured video

Events

The business case for hiring NextGen talent

Firms hiring nextgen talent have reaped the benefits from greater productivity to revenue growth. Clearly, there's a business case to be made for hiring millennials. Kate Healy of TD Ameritrade breaks it down.

Latest news & opinion

Jay Clayton says SEC, DOL can give market 'clarity' on fiduciary rule

Chief regulator is confident two agencies could reach 'common ground' on an investment advice standard across all accounts.

Vanguard winning at bond inflows, too

But iShares is strong competition.

Sen. Gary Peters brings broker background to work every day on Capitol Hill

Michigan Democrat resists ripping up DOL fiduciary rule but would be open to some changes.

DOL fiduciary rule causing DC-plan record keepers to change business with insurance agents

Principal has communicated that independent agents must change their business models to keep receiving compensation.

DOL fiduciary rule opponents want to push implementation back until 2019

ICI, Chamber of Commerce among groups asking for delay, while Democratic lawmakers call on DOL to keep to its earlier planned schedule of Jan. 1, 2018.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print