Congressman Wants FINRA To Examine Investment Advisors
May 29, 2015 by Arthur D. Postal, arthur.postal@innfeedback.com
WASHINGTON — An Arkansas congressman’s proposal to shift oversight of investment advisors to the Financial Industry Regulatory Authority (FINRA) from the Securities and Exchange Commission (SEC) ran into opposition immediately from a trade organization representing advisors.
Rep. French Hill, R-Ark., said he is considering legislation that would give FINRA authority to examine investment advisors. He said his motivation for doing so is to increase the percentage of advisors examined annually.
But officials of the Investment Adviser Association (IAA) immediately spoke out against the proposal such legislation. Their reason is FINRA’s previous statements that it envisions regulating investment advisors through a self-regulatory organization (SRO) structure.
The Hill proposal has been debated in Congress for years, and some time was spent talking about the issue during the extended markup of the Dodd-Frank financial services law in 2009 and 2010.
One reason the issue was on the table was severe criticism of the SEC in the wake of the Bernie Madoff scandal, which surfaced in late 2008.
Also, last week the House Financial Services Committee reported out legislation Hill sponsored that would provide a safe harbor to allow advisers and broker/dealers to provide data on exchange-traded funds (ETFs) to their clients without these reports to be considered “offers” under the Securities and Exchange Commission Act of 1933. The bill is H.R 2356, the Fair Access to Investment Research Act. The bill passed the panel overwhelmingly, 48-9.
But Hill’s latest proposal won’t get such smooth sailing.
Neil Simon, vice president for government relations for the Investment Adviser Association (IAA), said he plans to talk with Hill next week, when Congress returns from its Memorial Day recess.
“The IAA remains convinced that the best option is to retain the SEC’s primacy in investment advisor regulation and oversight,” Simon said.
He said the IAA supports additional SEC funding in order to accomplish that goal. Mary Jo White, SEC chairman, proposed such additional fund in her budget request to Congress, but a House committee rejected it.
Simon said Congress should “ensure” that the SEC has the resources it needs to increase the SEC’s advisor examination rate, either by increasing the SEC’s appropriation or permitting the agency to level reasonable user fees on registered advisors.
“The IAA strongly opposes the SRO model that FINRA has advocated for investment advisors,” Simon said.
He said that model would impose an unnecessary new layer of regulation and bureaucracy on advisors far beyond what is necessary to increase examinations, while introducing all of the other drawbacks of an SRO. Those drawbacks, he said, include inherent conflicts of interest arising from industry funding and influence; questions regarding transparency, accountability, track record and appropriate oversight by the SEC and Congress, and lack of due process.
“We remain committed to working with Congress and other policymakers to promote robust and far-reaching examination of investment advisors, which we believe is important to our industry’s integrity and to investor protection,” Simon said.
But, Simon said the IAA believes that the SEC remains the most appropriate regulator to execute such an examination program.
“The IAA will continue its effort to ensure that the SEC has the resources it needs to do the job that it is legally mandated to do,” Simon said.
