FINRA is not only an inappropriate regulator for independent, fee-only advisers, but its membership fees support “exorbitant” salaries and bonuses—and would likely dissuade many advisers from serving middle America. That is the argument of the National Association of Personal Financial Advisors (NAPFA), which issued a statement Wednesday on HR 4624, the Investment Adviser Oversight Act of 2012, co-sponsored by House Financial Services Chairman Spencer Bachus (R-Ala.) and Rep. Carolyn McCarthy (D-N.Y.).
NAPFA maintains that FINRA executives earn nearly 10 times the amount of officials at the Securities and Exchange Commission. Furthermore, NAPFA reasons, the SEC is regulated by Congress, whereas FINRA is a self-regulatory organization (SRO).
“We all agree that increased examination of independent financial advisers is crucial to maintaining the public trust,” said NAPFA Chair Susan John, CFP. “Where we differ is how to get there in the smartest and most efficient way. Even members of Congress question why one would create a separate, new program at FINRA, when fixing the existing program is clearly less costly and more efficient.”
NAPFA is not alone in its opposition to oversight of financial advisers by FINRA or another SRO. The North American Securities Administrators Association and the Investment Adviser Association are also opposed to the formation of a new SRO for financial advisers. On the other hand, the Financial Services Institute (FSI) is in favor of a regulatory structure exclusively for advisers, saying it is necessary to protect Americans in need of financial advice. (See “Adviser Oversight Bill Is Critical.”) FSI and Bachus have also argued that the SEC examines financial advisers only once every 11 to 13 years, whereas FINRA examines broker/dealers every two to three years.
FINRA recently came under fire when its annual report revealed a 9% increase in compensation for its executives in 2011 to $540 million. FINRA’s top 10 executives’ salaries neared $13 million in 2011, up 18% from $11 million the year before. Further, in 2009, when then-chairman Mary L. Schapiro left to join the SEC as chairman, FINRA awarded her $7.3 million.
FINRA Chairman and CEO Richard G. Ketchum earned $2.6 million in 2010, according to a recent SEC filing. In an interview earlier this year, Ketchum defended FINRA’s salaries, noting that the self-regulatory organization had hired Mercer consulting to benchmark FINRA salaries against those of the Wall Street firms it regulates. “FINRA strives to have a compensation structure that is competitive…but not excessive…with the comparable segment of the market,” Ketchum told DealBook.
In its statement Wednesday, NAPFA said that the organization is “deeply concerned that while prudent oversight of smaller, independent advisers is demanded, many advisers would likely curtail services to middle-class America if they are required to pay considerably higher fees and compliance costs to FINRA each year. At least part of those same fees would go toward the exorbitant salaries and bonuses of FINRA’s executive staff.”
NAPFA, founded in 1983, provides its 2,400 fee-only members with best-practice guidelines on their practices, financial planning and compensation.