Now that the Obama Administration has released its financial services reform plan via a White Paper June 17, it looks to be all but inevitable that the rules for broker/dealers and investment advisors will be harmonized and that broker/dealers offering investment advice will have to adhere to a fiduciary standard of care. The Obama plan calls for both of these actions to occur, but as David Tittsworth, executive director of the Investment Adviser Association (IAA) in Washington notes, “the devil is still in the details” as to how this reform will take shape. But it’s clear, he says, “The debate has begun now.”
Indeed, it will be up to Rep. Barney Frank (D-Massachusetts), chairman of the House Financial Services Committee, and Senator Christopher Dodd (D-Connecticut), head of the Senate Committee on Banking, Housing, and Urban Affairs, to craft legislation that puts the Obama plan in play. Both Congressmen wasted little time after the proposal’s release in setting up hearings to hash over reform issues.
At press time, the House Financial Services Committee was gearing up to hold what a Frank spokesman called “a robust series of hearings” through the remainder of June and into this month, with hopes to have financial services reform legislation marked up by the end of July. The Senate Banking Committee grilled U.S. Treasury Secretary Timothy Geithner on June 18 about the Administration’s plan. A Senate Banking Committee subcommittee was scheduled to hold a hearing on derivatives the week after the Obama plan was released, and more Senate Banking hearings on financial services reform were on the horizon.
Obama’s plan also calls for all advisors to hedge funds to register with the SEC, but it does not include establishing a self regulatory organization for advisors (SRO). During a press briefing held June 17 at Treasury, Geithner said he could not answer the question posed to him as to whether FINRA would become the SRO for investment advisors. That may be enough to signify that the issue is not dead. No doubt the issue will rear its head during the hearings and behind the scenes in Congress and at the SEC. As Tittsworth points out, an SRO is a “simple amendment to the draft of any bill.”
Commissioners at the SEC as well as FINRA CEO Richard Ketchum are also likely reluctant to let go of the idea that FINRA should have more oversight over advisors. As Ketchum noted during a recent speech to the National Association of Insured Retirement Solutions, “Regulation by an independent regulatory organization like FINRA, in my opinion at least, would best ensure that investment advisors are properly examined and their customers adequately protected.”
SEC Chairman Mary Schapiro has stated publicly and in a previous interview with Investment Advisor that while she believes an SRO should be explored, she remains undecided on the details surrounding an SRO. SEC Commissioners Elisse Walters and Kathleen Casey have voiced their support that FINRA be considered as an SRO for advisors, while Commissioner Luis Aguilar is opposed to the idea. Commissioner Troy Paredes has remained mute on the issue.