OHIO, ONE OF LAST HOLDOUTS, MULLS BILL TO REGULATE FINANCIAL ADVISERS: CLEVELAND CFP CHAPTER BACKS PROPOSAL; ONLY THREE STATES YET TO ACT

Financial planners and investment advisers in Ohio face the possibility of more frequent audits and punitive actions under a proposed law establishing state oversight of their burgeoning field.

Backers of a bill introduced in the General Assembly say it is aimed at cracking down on underqualified or dishonest money managers, and in setting standards for about 820 individuals and firms that manage other people’s money in the state.

“It is difficult to quantify the evils that might be out there in the financial planning industry,” says Thomas Geyer, commissioner of the Division of Securities of the Ohio Department of Commerce. “We have seen an increase in recent years of prosecutions for abuse, but we can’t say how many abuses there might have been that went undetected.”

Ohio is one of only four states that have not adopted regulations for smaller financial planning firms in the wake of a 1996 federal mandate that limited the Securities and Exchange Commission’s scrutiny of financial advisers to companies or individuals that manage $25 million or more in assets.

The SEC delegated responsibility for the smaller firms to the states after it was swamped by the enormous growth of the field. The number of financial planners and investment counselors rose from about 5,600 in 1980 to around 23,000 nationwide last year. The SEC said those numbers made it impossible to audit smaller firms more than once every 44 years.

pro and con

The bill currently in the Financial Institutions Committee of the Ohio House would require all financial planning firms to pay $200 a year for a state license and to license each planner within a firm for $50 a year.

To be licensed, planners would need to pass a test and to comply with standards set by the state Division of Securities that would mirror the SEC’s certification requirements. The bill also would allow the division to audit firms on a regular basis, and would give the agency the power to bring criminal and administrative charges against ab
users.

Paul Hrisko, president of the Northern Ohio chapter of the Institute of Certified Financial Planners, a Denver-based professional group, endorses the legislation in Columbus.

“Rather than being another layer of bureaucracy, this is an attempt to protect the consumer,” Mr. Hrisko says. “Our business has grown so much that there is plenty of room for people to stretch the truth, misrepresent investment opportunities, or just plain steal from their clients.”

But James Minnery, a Cleveland accountant who does financial planning as a complement to his tax practice, thinks otherwise.

“This is totally unnecessary,” Mr. Minnery says. “We already have to be registered with the SEC, and when I do money planning, I am really regulated by the brokers I work with, who are regulated by the SEC themselves. This is about the most regulated business there is.”

consumer protection

The bill’s sponsor, Republican Rep. Dennis Stapleton, says state lawmakers “don’t want to impose more government on small businesses.

“‘But we also don’t want just anybody to be able to go out and claim they know what they are doing with other people’s money.”

Mr. Geyer says that since 1990 his agency has prosecuted 13 cases of financial misdealings by money managers.

He says one of the cases involved a Lorain County financial planner who pleaded no contest to 121 felony charges after fleecing his clients of $1.5 million.

“It may not seem as though abuses are that prevalent,” Mr. Geyer says. “But those 13 are only the ones that were brought to our attention, since the SEC has had jurisdiction until now. The new bill will give us much wider jurisdiction to protect consumers.”

Crain News Service