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Regulation and Compliance > Federal Regulation > SEC

Advisors Prefer RIA Oversight by SEC

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In a small corner of the debate over regulation of financial services stands the registered investment advisor (RIA). The SEC and RIA firms alike acknowledge that the amount of oversight on RIA firms is inadequate. In its “Study on Enhancing Investment Adviser Examinations,” released in January, the SEC said the average exam interval for routine exams is now 11 years—up from seven years in 2009.

The broker-dealer (BD) lobby is using that as part of its push to crush another SEC recommendation, extension of the fiduciary standard of care to brokers who provide advice to investors. But a recent study conducted by AdvisorOne and fi360 indicated that the majority of brokers and RIAs in the field, 67.3%, believe that a “uniform fiduciary standard for brokers and advisors would help regain investors’ confidence.” Moreover, 58% say they “already have a fiduciary relationship with their clients.”

There is a big disconnect between what many BD executives are saying through their lobbyists and representatives in Washington—keep the status quo and preserve the “business model”—and the standard of care with which the majority of brokers in practice want to treat their clients, as indicated in the study above.

For more on this ongoing discussion, please see “Follow the Leaders: The 2011 IA 25,” “House GOP to SEC: Regulator Lacks 'Solid Basis' for Fiduciary Rulemaking,” andFinancial Planning Coalition Tells Congress to Support Fiduciary Duty,” for news, andWhy Is Congress Asking if We Can Afford to Treat Clients Right?for opinion.

RIAs Prefer Oversight by SEC

The AdvisorOne Top Wealth Managers Quarterly Pulse Survey, Q4 2010, asked participants, (which are all RIA firms), to rank the three recommendations the SEC made to close the oversight gap for RIA firms.

SEC staff made these recommendations to Congress:

“(1) Authorize the Commission to impose user fees on SEC-registered investment advisers to fund their examinations by OCIE;  

(2) Authorize one or more SROs to examine, subject to SEC oversight, all SEC registered investment advisers; or

(3) Authorize FINRA to examine dual registrants for compliance with the Advisers Act.”  

More than 40% of Top Wealth Managersparticipating in the Q4 survey would prefer to pay a fee to the SEC to have OCIE examine RIA firms.

Just over 31% of those participating in the survey said they would rather have “one or more SROs,” to oversee RIA regulation.

Finally, over 28% said they would rather see Congress “Authorize FINRA to examine dual registrants—BD-RIAs.

FINRA, the BD self-regulator, has stepped up to say it would like regulate all RIA firms, not only BDs and not just dually-registered BD-RIAs, and there is logic in why FINRA would want oversight of an entire firm if it is dually registered.

It is important to point out that having FINRA oversee all independent RIAs was not one of the SEC staff’s recommendations to Congress. Rather, they recommended that FINRA oversee the dual registrant BD-RIAs.

So far, however, there is only one other group that has stepped forward to ask for authorization to be an SRO for independent RIAs, and that is SROIIA, the Self-Regulatory Organization for Independent Investment Advisors. That’s the fledgling group led by a group of law students of University of Mississippi School of Law Professor and investor advocate Mercer Bullard.

It remains to be seen whether Congress will appropriate enough funding for the SEC to truly live up to its mandate as an investor protection organization—funding which the SEC earns through fees from financial industry participants, not from taxes, and out of which, in some years the Congress withholds hundreds of millions of dollars that could be going to fund programs that would, as advisors of all stripes indicated they believe, help to restore investor confidence.

For an overview on the debate about extending the fiduciary standard, please see “Politics and Process: SEC and the Fiduciary Study—Slideshow.”


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