Investment adviser lobbyist: Finra will renew effort to become adviser SRO

Regulator is 'playing the long game,' sees advisers as regulatory and revenue opportunity, IAA's Neil Simon says

Mar 6, 2014 @ 4:57 pm

By Mark Schoeff Jr.

Finra, adviser oversight, Congress, Rep. Maxine Waters
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IAA's Neil Simon: Finra sees advisers as regulatory and revenue opportunity.

The broker-dealer regulator will renew its effort in a future Congress to secure legislation that would allow it to extend its reach to investment advisers, according to a group that represents advisers.

In 2012, the Financial Industry Regulatory Authority Inc. made a strong push for congressional approval of a bill that would shift financial adviser oversight to a self-regulatory organization, from the Securities and Exchange Commission.

Advisers resisted the legislation, fearing that Finra, an industry-funded regulator, would fill the role and the measure died. Finra backed down when the new Congress convened last year and the champion of the SRO bill, Rep. Spencer Bachus, R-Ala., relinquished his seat as chairman of the House Financial Services Committee.

But Neil Simon, vice president of government relations for the Investment Adviser Association, said that Finra's quiescence doesn't mean that it has abandoned the SRO idea.

“It's playing the long game,” Mr. Simon said at the IAA Compliance Conference in Arlington, Va., on Thursday. “It's laying the groundwork for a future lobbying effort. It views advisers as a regulatory and revenue opportunity.”

There is little appetite in this Congress, which runs through the end of the year, to deal with adviser legislation, Mr. Simon told reporters on the sidelines of the conference.

(See which groups are pushing lawmakers to support a bill to boost adviser exams.)

But he said that Finra is motivated to expand its regulatory authority because the brokerage industry is shrinking.

“It is inevitable that at a time of their choosing, they'll be back on Capitol Hill,” Mr. Simon said. “I'm not saying that it's imminent.”

Finra declined to comment. Over the past two years, the organization has maintained that it isn't mounting a lobbying campaign to become the adviser SRO and isn't engaged in talks with the House or Senate.

But Finra has repeatedly stated that adviser oversight should be increased. The SEC examines annually about 8% of the nearly 11,000 registered investment advisers.

Finra and the IAA agree that a regulatory gap exists when it comes to investment advisers.

“That 8% figure is unacceptable,” Mr. Simon said.

The IAA doesn't want an SRO to oversee investment advisers because it would “impose upon you all intrusive, highly prescriptive regulations and exorbitant fees,” he told the conference audience.

The IAA and other adviser advocates are pushing a bill sponsored by Rep. Maxine Waters, D-Calif., the ranking member of the House Financial Services Committee, which would allow the SEC to charge advisers user fees to fund exams. That measure hasn't attracted Republican co-sponsors in the GOP-controlled House.

The IAA is trying to get a bipartisan bill introduced in the Democratic-majority Senate.

One of the factors working in favor of an SRO bill is that Congress denied the SEC in its current budget the funding it sought to hire an additional 250 investment adviser examiners, according to Mr. Simon.

“The restrictive budget leaves the door open for Finra and its allies to argue that inadequate adviser oversight should be addressed by contracting out this critical function to a private organization like Finra,” he said. “All it's going to take is an adviser [to commit a major fraud] and that would present the opportunity for Finra to jump right back in and renew its effort.”


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