July 31, 2012

Bipartisan Bill Seeks Expanded Oversight of Advisers

The U.S. House Financial Services Committee introduced legislation that would authorize one or more self-regulatory organizations (SROs) for advisers.

Reported by Jill Cornfield

Chairman Spencer Bachus (R-Ala.) and Rep. Carolyn McCarthy (D-N.Y.) are co-authors of the Investment Adviser Oversight Act of 2012.

Investment advisers and broker/dealers often provide indistinguishable services to retail customers, yet only 8% of investment advisers were examined by the Securities and Exchange Commission (SEC) in 2011, compared with 58% of broker/dealers, the committee noted.

The Financial Industry Regulatory Authority (FINRA) favors the bill and said in a statement, “…the current level of I.A. exams is unacceptable, and SROs can help fill this untenable gap in the protection of investment advisory clients.”

But advisers may not approve of FINRA as a potential regulator. “A recent investment adviser survey found that 80% of advisers would prefer SEC oversight to handing it over to FINRA,” says Karen Nystrom, NAPFA’s director of public policy and advocacy at the National Association of Personal Financial Advisors.

The legislation would amend the Investment Advisers Act of 1940 to provide for the creation of National Investment Adviser Associations (NIAAs), registered with and overseen by the SEC. Advisers who conduct business with retail customers would have to become members of a registered NIAA. The SEC would have authority to approve the registration of any NIAA.