The Financial Services Institute (FSI) on Monday formally endorsed FINRA as the SRO for investment advisors, a highly charged topic that the SEC is authorized to explore under Section 914 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Dale Brown, the president and CEO of the FSI, said in an interview with AdvisorOne on Tuesday that the "bottom line"on FSI's decision to endorse FINRA was that such an SRO would be "best for investors, since it addresses the most significant problem in the current structure: the huge gap between how broker-dealers are regulated and how investment advisors are regulated."
Brown further situated the decision as consistent with the independent broker-dealer (IBD) group's position throughout the congressional and regulatory debate on harmonization of rules and instituting a strong fiduciary "standard of care" that the best way to address the regulatory gap "is an SRO."
Answering a question on why the SEC shouldn't continue to regulate RIAs, Brown was quick to admit that "no one's questioning the commitment to the cause of the SEC, nor state regulators." However, Brown noted that "there are serious questions about resources—the SEC has never had the resources to do its job. The SRO addresses that resource issue."
Moreover, FSI was swayed, Brown said, by the argument for establishing an SRO under which "the cost of the regulation is borne by the industry, not affected by the swings from the congressional process. It creates certainty in terms of the resource allocation."
Resp
onding via e-mail to the endorsement, Dan Barry of the Financial Planning Association took issue with FSI's written contention, attributed to the group's chair, Mari Buechner (left), president and CEO of Coordinated Capital Securities, that a "regulatory structure that places the same emphasis on the examination" of RIAs, BDs and their affiliated advisors "will enhance investor protection." Barry says that argument "ignores that fact that despite years of blurring, there are real differences between a broker-dealer and an investment advisor business that require different oversight."
The FPA is part of the Coalition for Financial Planning which filed its own comment letter with the SEC on Dec. 16 on the issue of an SRO for advisors.
Addre
ssing the resources issue raised by Brown, Barry, FPA's managing director of government relations and public policy, went on to say that establishing an SRO for advisors "is just a waste of limited resources." Regardless of whether FINRA or some other organization is named as the SRO, "a significant amount of money would have to go into developing a new infrastructure, when we already have one that's been in place for decades at the SEC and in the states," Barry (left), says. "Outsourcing oversight," he concludes, "is the wrong answer."
The SEC itself has admitted that it has limited resources to implement all the new offices, studies and rulemakings dictated under Dodd-Frank, to the point of listing on its website those provisions it was postponing because of "budget uncertainty." The congressional failure to pass an omnibus spending bill in mid-December for the current Federal fiscal year has only compounded the funding issue for the SEC.
Section 914 under Title IX of Dodd-Frank gives the SEC the job of exploring "the need for enhanced examination and enforcement resources for investment advisers," including the option of determining if designating "one or more self-regulatory organizations to augment the Commission's efforts in overseeing investment advisers would improve the frequency of examinations of investment advisers."
Assuming a Fiduciary Standard WIll Be Implemented
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