GAO Makes Recommendations, Stops Short of New SRO

The Government Accountability Office (GAO) has published its report on financial planning regulation, as mandated by the Dodd-Frank Act, and found “an additional layer of regulation” is not needed.   

The GAO report said that most services rendered by financial planners, whether working as investment advisers, broker/dealers, or insurance agents, are covered by a regulatory agency.  However, the report added that “the attention paid to enforcing existing regulation can vary and certain consumer protection issues remain.” The report outlined three areas of concern:

  • Consumers may be unclear when a financial planner is being held to a fiduciary standard, especially when that planner is providing multiple services.
  • Financial planners can market themselves under numerous titles and designations that vary significantly in training and expertise, but consumers may not know the differences.
  • The SEC does not keep a detailed record on complaints, examination results, and enforcement activities relating to financial planners; therefore, the extent of the problem is not fully known.   

Several solutions have been discussed to address these issues, said the report, such as instituting a self-regulating organization to oversee financial planners/investment advisers.  However, “a majority of the regulatory agencies and financial services industry representatives GAO spoke with did not favor significant structural change to the overall regulation of financial planners because they said existing regulation provides adequate coverage of most financial planning activities,” the GAO concluded.

The GAO did provide three recommendations to solve the areas of concern:

  • The National Association of Insurance Commissioners (NAIC) should take steps to assess consumers’ understanding of the standards of care with regard to the sale of insurance products, such as annuities, and take actions as appropriate to address problems revealed in this assessment.
  • The SEC should investigate to what extent investors understand the titles and designations used by financial planners and any implications a lack of understanding may have for consumers’ investment decisions.
  • The SEC should collaborate with state securities regulators to try to better understand the extent of problems specifically involving financial planners and financial planning services.

The report listed all of these recommendations as being “in process.”  The SEC was also mandated by the Dodd-Frank Act to publish reports, see “SEC Reports on B/Ds and Advisers Expected Soon.