Investment Advisers- Are They Willing to Pay Up to Keep FINRA Out?

There has been a lot of talk lately about FINRA taking the supervision responsibilities for investment advisers away from the SEC. Overall, the SEC is looking to find a way to monitor the investments adviser’s and prevent future scandals, such as the Madoff case, from happening again. This it seems is easier said than done these days. Since 2004 the number of investment advisers has grown by 40%, but at the same time the number of SEC examiners has fallen. The SEC simply cannot stay on top of the increasing number of adviser’s in the industry. As of now they can only examine 9% of all advisers each year. Obviously, this leaves room for scandals to go unnoticed.

So there are three options that the SEC is currently considering to solve this problem:

1) Have the investment advisers pay fees to the SEC so they can fund more examiners

2) Create a new self-regulatory organization to oversee advisers

3) Expand the authority of FINRA to supervise not just brokers, but advisers as well

This is where FINRA enters the scene, as it seems a real FINRApossibility that option three might come to fruition. You see, FINRA currently has the capacity to screen half of their members in one year, a much better average than the SEC. The problem is that no investment adviser wants FINRA looking over their shoulders. David Tittsworth from the Investment Adviser Association commented that “FINRA has a complete lack of transparency and accountability”. FINRA currently oversees brokers and it seems advisers don’t want to be bound to the same rules given to brokers. Since advisers and brokers are different entities they feel they should have different rules and different bodies overseeing their actions.

In the end it seems that ideally the advisers would rather choose the first option listed and take on additional fees to keep the SEC in charge. Kevin Keller from the Certified Financial Planner Board said “The SEC has 70 years of experience overseeing investment advisers. We want them to retain that authority”. So is this a matter of the advisers being too comfortable with the way things are? Or are they worried, not because FINRA is all wrong for this job, but because they will bring on tough oversights and too much regulation? It might be a big change to go from an examination every 11 years to every 2-3 years.

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