Richard Ketchum, CEO of the Financial Industry Regulatory Authority (FINRA), omitted a crucial detail in a recent interview he gave.
While he was forthcoming in revealing that FINRA was abandoning its fight to have the House Financial Services Committee revisit this year the SRO bill championed by the committee's former chairman, Rep. Spencer Bachus, which would have given FINRA the right to take over advisor oversight, he craftily failed to mention the fact that FINRA had shifted its fight to the Senate.
Indeed, as I learned from several industry sources, FINRA is now trolling the Senate for SRO backers.
"FINRA has been trying for several months to quietly obtain sponsors for an SRO bill in the Senate, rather than in the House" where the self-regulator failed to have Bachus' bill come up for a vote at the committee level last year, said Ron Rhoades (right), assistant professor and chairman of the financial planning program at Alfred State College.
Karen Nystrom, head of public policy and advocacy for the National Association of Personal Financial Advisors (NAPFA), confirmed that rumors have indeed been swirling that FINRA is seeking Senate sponsors for an SRO bill. However, she said, no supporters have surfaced yet.
Another industry executive told me this: "Keep watching" what happens in the Senate. "This [SRO] issue isn't going away."
Comments made by Ketchum to Reuters in early February seemed to give advisors a glint of hope that FINRA had decided to abandon its efforts to become the SRO for advisors. Ketchum said that FINRA would forgo, for now, its attempts to get the House Financial Services Committee to revisit this year Bachus' SRO bill, particularly since newly christened chairman Rep. Jeb Hensarling, R-Texas, has taken the helm. "I'm not a big believer in beating a head against the wall," Ketchum told Reuters. "We'll focus on things we can impact."
A FINRA spokesperson told me a day after the Reuters story was published that "while there is shared concern about the lack of resources devoted to IA oversight, there is clearly a lack of consensus about how best to address that problem. It remains a critical investor protection issue and our views remain that it should be addressed as soon as possible."
While "other issues" are closer to the top of Congress' agenda, the advisor SRO issue "will likely not be resolved in the near term. Hopefully for investors who entrust their funds to investment advisors, the issue will get another look in the not-too-distant future," the spokesperson said.
Hensarling, who took over in January, is said not to be keen on Bachus' SRO bill and is likely to focus on other issues this year, such as reforming Fannie Mae and Freddie Mac as well as certain aspects of the Dodd-Frank Act.
Another reason FINRA likely shifted its SRO strategy to the Senate is the fact that the Financial Planning Coalition is—and has been—seeking senators who would back a user-fees bill.
Nystrom said in November that the Coalition planned this year to thwart passage of an SRO bill by ensuring a "bipartisan bill" originates in the Senate allowing the Securities and Exchange Commission (SEC) to collect user fees from advisors to fund their exams. She told me in early February that the coalition—which includes NAPFA, the CFP Board and the Financial Planning Association—"still believes" user fees are the best way to ensure advisors are examined more often.
However, Ketchum "makes it clear" that the SEC's difficulties in adequately examining advisors "have not disappeared," Tittsworth (right) added. As Ketchum told Reuters: "When you don't go in and examine an entity on a regular basis, the potential for a Ponzi scheme is much greater," citing a lack of manpower and financial resources at the SEC as the root of the problem.
