Brooke’s note: One of the key voices advocating for FINRA as the regulator of choice for RIAs is FSI president & CEO Dale Brown. He testified at 10 a.m. to House Financial Services Committee today (Wednesday). And his group then executed an aggressive barnstorming campaign. It took about 25 financial advisor members around Capitol Hill advocating on the need for an independent regulator for RIAs with plans to complete more than 30 meetings with key members of the committee and their staffs. This is the second time in the last 30 days that FSI brought a team of financial advisors to the Hill to educate members of Congress on this issue. Last October it completed over 260 meetings with 150 members in just one day on this issue. In a note, a spokesman wrote: “You will notice we do not today nor will we in the future use the words “self-regulatory organization.” We will instead say “independent regulator.” See the testimony for why.”
Thank you. I am Dale Brown, President & CEO of the Financial Services Institute, and I am pleased to express our support for the Investment Adviser Oversight Act. We urge the Committee to approve this bill because it will protect Americans who need investment advice.
An effective regulatory structure for all financial advisers is a critical component to building and maintaining the trust of American savers and investors. Fish’s more than 100 member firms and 35,000 financial advisor members, most of whom are small businesses, work with middle class investors across America. Our members are regulated under both broker-dealer and investment adviser rules. They rely on their personal reputations to earn and maintain trusted client relationships. They have a powerful incentive to put their clients’ interests first, and to embrace the highest ethical standards and most effective oversight that will bolster their clients’ trust. These clients are saving and investing for retirement, for their children’s educations, and to care for their aging parents.
Today, a middle class family that wants professional help with investing their kids’ college fund has no real way of knowing if someone is checking up on their investment adviser. FINRA might have audited their adviser in the last two to three years. Or that adviser might not have seen an SEC examiner since 1999 — if at all. American investors should not have to be regulatory experts to know whether they are being protected. See: .
There are many reasons for this unacceptable regulatory gap. But the question today is: how do we close it? We believe HR 4624 is the best solution for this urgent investor protection problem.
The bill would shift the responsibility for investment adviser examinations from the SEC to an independent regulator paid for by the industry, not taxpayers. This would free the SEC to regulate the regulator, as it has done for decades for the brokerage and municipal securities industries, among others. See:
Related· Oct 6, 2009Showdown set over whether RIAs stay under regulatory authority of the SEC [Updated!]
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Gap monster
The Dodd-Frank Act identified this serious regulatory gap. Under the status quo, broker-dealers face routine examinations every two to three years. In contrast, the typical investment adviser is examined on average once every 13 years.
The SEC told this Committee that it had examined only eight percent of registered investment advisers in 2011. They also revealed that nearly forty percent have never been examined — not even once. This is not acceptable. In its Section 914 study, the SEC called it very unlikely that they will ever have the resources to conduct RIA examinations with adequate frequency. Their recommendations laid the groundwork for this bill.
Eighteen months ago, FSI endorsed FINRA as the best choice for an independent industry regulator for retail investment advisers. FINRA already has a solid working relationship with the SEC, and an infrastructure in place that it can adapt quickly to supervise and examine RIAs. See: .
Avoiding terms
Related· Jun 1, 2012Bernie Clark and Skip Schweiss head to Washington next week to fight on behalf of RIAs in Bachus bill showdown
I am avoiding the terms “self-regulatory organization” and “SRO” because they are misnomers, implying that the industry regulates itself. This is simply not true under FINRA. FINRA’s governing board is a majority of non-industry public members and their staff are professional, experienced regulators. See:
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We have no illusions that FINRA is a perfect regulator. Some of the criticism it is receiving is valid. Many credible observers, such as the GAO, have documented areas in which FINRA can improve its transparency and accountability. FINRA should embrace these reforms as it continues to improve as the broker-dealer regulator and become the investment adviser regulator.
The issue of cost associated with HR 4624 is important and should not be downplayed. The hard truth is that any remedy for this unacceptable regulatory gap will cost money. We have an opportunity to solve the problem in a way that does not burden the taxpayer and closes this gap quickly and cost effectively. The Bachus/McCarthy proposal does just that. See:
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Friends in opposition
I have many friends in the industry, including some FSI members, who are adamantly opposed to this bill. I respect their views, but the status quo is not acceptable. Let us work together toward a practical solution that will benefit American savers and investors. It is the right thing to do.
Thank you, Chairman Bachus and Congresswoman McCarthy, for taking this critical, bipartisan step forward. We urge the Committee to pass this bill as quickly as possible. See: .
