While Bachus Pushes Advisor SRO Bill, Sen. Johnson Isn't Quite Ready

A lot of the focus at the hearing was on providing funds to help the SEC modernize its outdated technology, "so it is not clear that the agency would get the funding it needs to enhance the number of advisor exams it performs," says Fausti, who's a former SEC attorney. And even if the agency did get enough funding to cover advisor exams, "I don't believe that an SRO would be totally ruled out."

SEC Chairman Mary Schapiro also admitted for the first time publicly at the Sept. 15 hearing that an SRO for advisors must be "very seriously" considered. "Schapiro recognizes that funding is not a cure-all and that there may be restrictions that come with more funding, so all viable alternatives need to be considered," Fausti says. Also, as the former head of NASD and then FINRA, "Schapiro also clearly understands the SRO structure and believes that it can be an effective oversight mechanism."

As for whether the SEC will move forward with a proposed rule by year-end putting brokers under a fiduciary mandate, Schapiro signaled at the hearing that the agency is still meeting with industry officials and "others" as well as having the agency's economists work on a further cost-benefit analysis of such a rule "to help inform this discussion." Said Schapiro: "We have not yet proposed to go forward with a specific [fiduciary] rule at this time."

The SEC still lists under its upcoming activities under Dodd-Frank for August- December, "proposed rules, as may be appropriate, based on Section 913 study conducted on the obligations of brokers, dealers and investment advisers"—that is, fiduciary duty.

As the recent U.S. Court of Appeals for the D.C. Circuit decision that struck down the SEC's rule granting proxy access rights because the agency failed to consider the economic impact of the rule shows, "any SEC rulemaking in the fiduciary area that seriously affects broker-dealers' business models without conducting an in-depth and comprehensive cost-benefit analysis will likely be challenged in court, and the challenge will have reasonable likelihood of success," says Mark Perlow, partner in the investment management practice area for the law firm K&L Gates.