Finra has opened up its checkbook to lobby Congress for authority over investment advisers.
The
Financial Industry Regulatory Authority Inc is on track to increase its lobbying expenditures by about 20% this year — to about $1 million — according to lobbying reports the organization has filed with Congress.
Through September, Finra spent $780,000 in lobbying the House of Representatives, the Senate and the Securities and Exchange Commission.
In the third quarter alone, it spent $310,000 — more than any quarter in the past four years. Last year, Finra spent $830,000 on lobbying, up from $680,000 in 2007.
Finra disclosed this year that it had begun lobbying for “financial regulatory reform” and the “harmonization of regulation of broker-dealers and investment advisers.”
In past years, Finra reported that its lobbying efforts were limited to financial regulation, the role of self-regulation and investor protection and education.
Finra spokesman Herb Perone declined to comment on Finra's lobbying activities.
Lobbying expenditures that organizations report include staff time devoted to lobbying and money paid to outside lobbying firms, said Kenneth Gross, a partner at Skadden Arps Slate Meagher & Flom LLP.
As a private, non-profit trade association, Finra is able to spend an unlimited amount to lobby Congress, he said.
By contrast, federal law prohibits government agencies from lobbying, although in practice they do influence Congress through liaison offices, Mr. Gross said.
Agenda supported
Supporting Finra's lobbying efforts, Steve Distante, chief executive of Vanderbilt Securities LLC and chairman of the National Association of Independent Broker/Dealers Inc., said that with major regulatory changes afoot, Finra has to be proactive with Congress.
“It's the right move for them,” he said. “Capitol Hill is being very reactive right now over the Madoff thing — they're all very embarrassed.”
One of the NAIBD's goals has been to go before Congress and regulators to advocate for its members' interests before new rules are written, Mr. Distante said.
“The real question for me is how effective [Finra] has been” in its lobbying, said Donald Gloisten, chief executive of the independent-contractor firm GBS Financial Corp., who, like many in the brokerage industry, would like to see Finra get jurisdiction over investment advisers.
Brokers are frustrated by having to compete with what they view as lightly regulated advisers.
“We're totally supportive” of Finra's push to get oversight of advisers, Mr. Distante said. “The regulatory environment for RIAs is minimal, especially at the state level.”
But Finra's growing lobbying budget strikes some observers as questionable, since the organization is struggling financially.
Spending more on lobbying doesn't make sense, “seeing that they lost $586 million last year investing [Finra] members' money, and at the same time they're increasing assessments [on brokers and firms],”said John Busacca, owner of the Broker Dealer Exchange LLC and one of the founders of the Securities Industry Professional Association, which represents firms and registered representatives.
In a filing last month with the SEC that asked for an increase in member fees, Finra said that its main source of assessment revenue fell 37% this year, due to write-offs taken by the major securities dealers last year.
As a result, Finra said it has had to absorb a $100 million assessment shortfall.
In the lobbying arena, broker-dealers generally oppose Finra's support of a federally defined fiduciary duty for brokers.
“That is frightening to me,” Mr. Gloisten said. “It would be almost a blank check to the plaintiff's bar [if they] don't have to convince [arbitration] panels that you are a fiduciary.”
Finra, like the Securities Industry and Financial Markets Association, has become a reluctant supporter of a fiduciary standard of care for anyone giving personal financial advice.
Andrew DeSouza, a SIFMA spokesman, declined to comment.
Adviser regulation
Finra's efforts seem to be paying off so far in the fight over adviser regulation.
Last month, an amendment was added to the proposed Investor Protection Act that would have give SEC the power to hand Finra oversight of dually registered advisers.
The amendment, offered by Rep. Spencer Bachus, R-Ala., the ranking Republican on the House Financial Services Committee, could give Finra great power, said Neil Simon, vice president for government relations of the Investment Advisers Association, which represents federally registered advisory firms.
Under the change, Finra could get control over advisory affiliates of broker-dealers as well as dually licensed individuals, Mr. Simon said. If that happened, Finra would have authority over firms with 80% of total assets under management at advisory firms, he said.
Giving Finra authority over advisory firms, after the near collapse of Wall Street, would be unwise, Mr. Busacca said.
Marisol Garibay, a spokeswoman for Sen. Bachus, did not respond to requests for comment.
Rep. Barney Frank, D-Mass., chairman of the Financial Services Committee, has said that he will try to remove the amendment when the bill comes before the full House in coming weeks.
Meanwhile, another regulatory proposal before Congress would to give states oversights over advisers with up to $100 million in assets under management, instead of the current $25 million threshold, leaving a smaller number of larger firms under the auspices of the SEC.
Lawmakers are also calling for studies on how regulators failed in their duties, and whether Finra's mandatory arbitration system is fair.
E-mail Dan Jamieson at [email protected].
