To show its support for the bipartisan Investment Adviser Oversight Act of 2012, Dale Brown, chief executive and president of the FSI, testified before Congress Wednesday and urged the Committee on House Financial Services to approve it.

The bill, co-authored by Rep. Spencer Bachus (R-Ala.), chairman of the committee, and Rep. Carolyn McCarthy (D-N.Y.) calls for a self-regulatory organization (SRO) to oversee financial advisers. (See “Bipartisan Bill Seeks Expanded Oversight of Advisers.”)

Calling regulatory structure for financial advisers “a critical component to building and maintaining the trust of American savers and investors,” FSI said the bill should be approved to protect Americans who need investment advice. Advisers are now overseen by the Securities and Exchange Commission (SEC).

The bill would shift responsibility for adviser examinations from the SEC to an independent regulator paid for by the industry, freeing the commission to regulate the regulator, as it has done for decades for the brokerage and municipal securities industries, among others, Brown pointed out.

“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,” Brown noted. “[The Financial Industry Regulatory Authority] 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.”

Brown pointed out that broker/dealers face routine examinations every two to three years, while the typical adviser is examined, on average, once every 13 years.

According to the FSI, the SEC said that it had examined only 8% of registered investment advisers in 2011 and said that nearly 40% have never been examined. Calling this unacceptable, Brown noted that the SEC said in a study that it was “very unlikely” it would ever have the resources to examine advisers with adequate frequency.

While several industry trade groups have registered opposition to the bill and to the selection of FINRA as a regulator for advisers, the FSI endorsed FINRA as the best choice more than a year ago. The North American Securities Administrators Association and the Investment Adviser Association both testified against the need for an SRO at the hearing.

“We have no illusions that FINRA is a perfect regulator,” Brown said. The FSI conceded the validity of some criticism, and said many credible observers, such as the Government Accountability Office, 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,” Brown said.