Plan to place B-D advisers under Finra scrapped

But the battle over who regulates investment advisers likely to move to the Senate

Dec 11, 2009 @ 11:19 am

By Jessica Toonkel Marquez

The investment adviser community breathed a sigh of relief today after the House killed an amendment that would have given the Financial Industry Regulatory Authority Inc. the authority to regulate investment advisers at broker-dealers.

The measure that scrapped the amendment was passed by a voice vote.

The proposal to put advisers associated with broker-dealers under the regulation of Finra was introduced in October in Financial Services Committee by Alabama Rep. Spencer Bachus, the ranking Republican on the committee as an amendment to the Investor Protection Act, which is being deliberated by the House.

But over the past several weeks, investment advisory groups, such as the Financial Planning Association, the Investment Advisers Association and the Certified Financial Planner Board of Standards Inc. have been rallying members to send letters and make phone calls to their representatives opposing the amendment.

The measure to strip the amendment from the investor protection bill was introduced by Financial Services Committee chairman Barney Frank, D-Mass., and Rep. Frank Cohen, D-Tenn. Mr. Frank's committee passed the Bachus amendment over his objections.

Calls to Mr. Frank's and Mr. Bachus' offices were not immediately returned by press time.

“We are very pleased that Congress took this step,” said Neil Simon, vice president for government relations of the Investment Advisers Association, which represents federally registered advisory firms.

The fact that Congress killed the amendment shows that it understands the flaws in Mr. Bachus' argument that the Bernard Madoff scandal would have been prevented if Finra had regulatory oversight of advisers, said Barbara Roper, director of investor protection for the Consumer Federation of America.

Ms. Roper cautioned that it is premature to celebrate the apparent demise of the amendment.

“We never declare a bill dead until the bill is signed into law,” Ms. Roper said.

What's more, the full Investor Protection Act does call for a study of the role of self-regulatory organizations — and that could have consequences in the long term, said Dan Barry, director of government relations for the Financial Planning Association. “Finra would like to gain oversight of at least the dual-registered advisers and so we will keep an eye on this,” Mr. Barry said.

“We are encouraged that language in this bill directs the [Securities and Exchange Commission] to study and report back to Congress on the potential need for an SRO for investment advisers," said Howard Schloss, executive vice president for corporate communications and government relations at Finra.

The Senate Banking Committee is still working on its financial services overhaul bill, which could have implications for regulation over investment advisers. It remains to be seen just how far that version will go, Mr. Simon said.

“The fight is not over,” he added. “This was a significant victory but we are going to have to remain vigilant and active.”


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