Plan to place B-D advisers under Finra scrapped

Hours before passing the most significant financial-reform package in nearly 80 years, the House Friday killed an amendment that would have given the Financial Industry Regulatory Authority Inc. the authority to regulate investment advisers at broker-dealers.

Hours before passing the most significant financial-reform package in nearly 80 years, the House Friday killed an amendment that would have given the Financial Industry Regulatory Authority Inc. the authority to regulate investment advisers at broker-dealers.

The massive bill, which was passed by a vote of 223-202, would create a financial services oversight council to monitor the financial markets and potential threats to the nation’s economic system.

In the last hours, Democrats succeeded in killing off an amendment that would have put advisers associated with broker-dealers under the regulation of Finra. The provision was introduced in October in the Financial Services Committee by Alabama Rep. Spencer Bachus, the ranking Republican on the committee.

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

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

The sweeping bill includes several provisions contained in the proposed Investor Protection Act, which was passed by the Financial Services Committee in October. Among other things, it would require brokers and advisers providing advice to adhere to a uniform fiduciary standard.

The Senate will likely vote on its own version of a regulatory-reform bill early next year.

T. Timothy Ryan Jr., president and chief executive of the Securities Industry and Financial Markets Association, called the passage of the bill “a significant milestone in reforming regulatory oversight of the financial markets.”

“We applaud the House for their thorough and serious approach to developing this legislation over the last many months,” he said in a statement.

Some concerns

That said, SIFMA reiterated its concerns with a few provisions in the bill.

Specifically, SIFMA opposes a provision authorizing the FDIC to impose a 10% loss, or “haircut,” on secured creditors in the event that a financial firm collapses.

The Committee for the Fiduciary Standard, which was formed this year to support enactment of a federal law extending the fiduciary standard to all investment professionals who hold themselves out as financial or investment advisers, hailed the bill as “a giant leap for American investors.”

The measure introduced on the House floor to strip the amendment regarding Finra oversight of B-D advisers was sponsored by Financial Services Committee Chairman Barney Frank, D-Mass., and Rep. Frank Cohen, D-Tenn. Mr. Frank’s committee had passed the Bachus amendment over his objections.

Calls to Mr. Frank’s and Mr. Bachus’ offices weren’t returned by press time. Finra press officials didn’t return a call and e-mail requesting comment.

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.

She 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.

Dan Barry, director of government relations for the FPA, hailed the bill for putting brokers under a fiduciary standard.

“We’re concerned, however, that the way they’re going about it will result in a dual standard [for brokers and investment advisers]. We’re hoping the fiduciary-standard issue is clarified with the Senate version of the bill,” he said.

“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.

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 said. “This was a significant victory, but we are going to have to remain vigilant and active.”

Frederick P. Gabriel Jr. and Jeff Nash contributed this story.

E-mail Jessica Toonkel Marquez at [email protected].