New SRO for RIAs Supported by Fiduciary Committee

If SEC doesn’t receive adequate funding to regulate RIAs, SROIIA is an alternative to RIA regulation by FINRA

The Committee for the Fiduciary Standard will support a self-regulatory organization (SRO) for registered investment advisors (RIAs) “if Congress fails to provide sufficient funding to the SEC to continue oversight of investment advisers,” the advocacy group said Monday in a news release.

The Committee backed Mercer Bullard’s (left) Self-Regulatory Organization for Independent Investment Advisers (SROIIA). It is to be an SRO for RIAs that will require that members adhere to what it calls the “bona fide” fiduciary standard, and would be an alternative to the broker-dealer SRO, FINRA, which has stated that it would like to regulate RIAs. 

Bullard, a law professor at the University of Mississippi School of Law, founder of Fund Democracy, and an investor advocate, announced the formation of SROIIA by two of his law students in March.

The Committee welcomes SROIIA's entry into the market, notes it is an ‘early stage startup’ and looks forward to its development and seeing details about its operating plans to support and enforce the fiduciary standard of conduct,” the Committee said in the announcement. This editor is a member of the Committee.

 

“SROIIA's raison d'être is enforcing the fiduciary standard under the Advisers Act articulated by the Supreme Court in Capital Gains Research; it could become a central anchor of the investment fiduciary culture that is just now reasserting itself,” Knut A. Rostad, chairman of the Committee and regulatory and compliance officer of the RIA Rembert Pendleton Jackson, told AdvisorOne.

The Committee’s first choice for RIA oversight is a self-funded or adequately funded Securities and Exchange Commission (SEC) and said in its announcement that it “urges Congress to provide the SEC with self-funding or sufficient multi-year funding appropriations, as outlined in the Dodd-Frank Act, to fully carry out its Dodd-Frank mandate and investor protection responsibilities—including regulation of investment advisers.”

“If Congress determines there will be an SRO for Investment Advisers, SEC registered investment advisers deserve a choice.” The Committee said in its announcement, adding, “SROIIA seeks to be an SRO imbued with an unwavering commitment to the authentic fiduciary standard. This is what investors expect; this is exactly what they need.”

The SEC has been hampered by budget cuts—one way of Congress regulating the amount of oversight

and investor protection the SEC can impose on the financial services industry—which is a major source of campaign funding for members of Congress.

The SEC gets its revenue from fees on transactions of financial services firms. However, that revenue goes to the Treasury. Congress appropriates a fraction of those revenues to the SEC annually, but keeps millions of dollars—in some years hundreds of millions of dollars—and uses those SEC-earned revenues for other purposes. The point is that adequately funding the SEC from its own revenues doesn’t raise the deficit or taxes.

Given the political and funding issues currently facing the SEC, it may not get the resources to continue to regulate registered investment advisers.  In that event, the Committee supports an alternative self-regulatory organization that clearly demands a bona fide fiduciary standard,” Sheryl Garrett, founder of the Garrett Planning Network of fee-only advisers and a founding member of the Committee stated in the release.

The Committee, founded in June 2009, advocates that those who provide advice to individual investors to do so as fiduciaries under the Investment Advisers Act of 1940 as “embodied in five core fiduciary principles:”

  • “Put the client’s best interests first
  • Act with prudence; that is, with the skill, care, diligence and good judgment of a professional
  • Do not mislead clients; provide conspicuous, full and fair disclosure of all important facts
  • Avoid conflicts of interest; and
  • Fully disclose and fairly manage, in the client’s favor, unavoidable conflicts.”
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