When the House Financial Services Committee recently announced the remainder of its schedule, I was relieved to see that the so-called Bachus Bill was not listed and will have to wait until next session to be debated.
Rep. Spencer Bachus (R-AL), Chairman of the House Financial Services Committee, introduced the Investment Advisor Oversight Act of 2012 last year. If passed, it would create a separate regulatory organization (SRO) to monitor and regulate financial advisors. The bill’s most troublesome provision is that the Financial Industry Regulatory Authority Inc. (FINRA) that now regulates brokers SRO would become advisors’ SRO.
An article in Investment Advisor listed “eight ways in which FINRA oversight will hurt independent advisors and the American public” They are:
- FINRA’s exorbitant operating expenses and bloated salaries make them more Wall Street than Main Street.
- FINRA’s mandatory membership fees will put many independent financial advisors who offer adviceto middle-class savers out of business.
- The burden of making small business owners pay mandatory fees to fund FINRA salaries is unconscionable.
- FINRA is not subject to Sunshine Laws and doesn’t have to hold open meetings.
- FINRA is not subject to the Freedom of Information ACT and is notoriously secret about its books and records.
- FINRA is an organization run by Wall Stree’s executives who, with a “wink and a nod” purport to oversee their Wall Street colleagues. This is like ENRON overseeing CPAs or drug companies overseeing your family physician.
- FINRA has no experience working with financial advisors held to the high fiduciary standard. (Gordon’s Note: They are accustomed to working with brokers who are hld to the lower suitability standard.)
- FINRA acts like a government authority, but without government accountability.
David Tittsworth, executive director of the Investment Adviser Association, and other opponents that include Charles Schwab and TD Ameritrade have argued that an SRO would add a costly new layer of regulation, eliminate jobs, and be particularly burdensome to small advisory firms. As it is now, the Securities and Exchange Commission (SEC) regulates investment advisors who manage more than $25 million in assets and the individual states oversee advisors with less than that under management.
Backers of the SRO measure insist that the SEC reviews only about 8% of nearly 12,000 registered investment advisors (RIAs) annually. Other reports indicate that the SEC annually examines 40% of advisors under its jurisdiction. I certainly agree that more investment advisors should be examined each year, but regulating RIAs as if they were broker-dealers is a mistake.
An obvious solution would be to increase the SEC’s budget so they have the resources they need to conduct more advisor reviews with advisors paying a user fee. And, surprisingly, that could happen before the end of this session of Congress. Of course, additional funding for the SEC could, in turn, influence the fate of the Bachus Bill. Stay tuned.