Finra boss calls for fiduciary standard for all advisers

But Finra does not want to significantly alter suitability rules that B-Ds now follow

May 13, 2009 @ 1:27 pm

By Sara Hansard

For the first time, Finra chief Richard Ketchum called for adopting fiduciary standard for all advisers.

“We ought to move to a single standard, and I think it makes sense for it to be a fiduciary standard,” he said in an interview today.

Mr. Ketchum is chairman and chief executive of the Financial Industry Regulatory Authority Inc. of New York and Washington.

He and other Finra officials have called for bringing investment advisers under a self-regulatory organization in order to leverage the ability of the Securities and Exchange Commission to supervise advisory firms.

They have suggested that Finra would be the best SRO to oversee advisers since it already examines and regulates broker-dealers.

“A single standard makes sense for persons that are engaged in very similar activities. To the extent a broker-dealer is providing broad-based advice similar to what an investment adviser is doing, we would love to get to a single standard,” Mr. Ketchum said. However, he indicated that Finra does not want to alter significantly suitability rules that broker-dealers are obliged to follow.

“Suitability provides a level of specificity and value over and above a fiduciary standard,” Mr. Ketchum said.

Few enforcement cases appear to have been brought based on violation of fiduciary standards, he said. More enforcement cases are made because of unsuitable recommendations made by brokers to clients.

Changes in Finra’s governing structure would have to be made to accommodate the more than 11,000 investment advisory firms that are regulated by the SEC, Mr. Ketchum said.

“We think strongly that we need a solution that ensures that the investment advisory community has proper governance over that function,” he said.

Finra officials are “open-minded” about how that could be accomplished, Mr. Ketchum said.

Members could be added to Finra's current board who have advisory backgrounds, or a separate "mirror board," could be created that would represent investment advisers, he suggested.

In addition, Finra would need to add investment advisory expertise to its staff to oversee the advisory industry, Mr. Ketchum said.

He called for a dialogue with investment advisory industry representatives to discuss the possibility of Finra’s serving as the SRO for advisory firms.


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