Mercer Bullard Asks at fi360: Who Will Regulate Investment Advisors?

FINRA now oversees “631,000 registered representatives,” of which “389,000” are registered reps only; “242,000” are registered reps and investment advisor representatives (IARs) or dual registrants and “34,000 are truly independent investment advisors. FINRA is lobbying very hard to regulate the independent IARs and BD-RIAs,” says Bullard.

 An “investment advisor SRO means money that [RIAs] are not paying now” will be paid for regulation, Bullard says, adding that the “smallest BDs in FINRA pay $1,500 year,” and he estimates the “RIA SRO minimum would be $2,000 a year. Small independent RIAs might not be able to survive … it’s not feasible for a firm with under $50 million in assets to survive.” Bullard adds that the industry could see lots of consolidation of small firms if the SRO goes through. “RIAs should be screaming for a cost-benefit analysis,” Bullard asserts, if the SRO option is pressed.

SROIIA wants to regulate only the independent RIAs, not the dual registrants. Its creators plan for a “bona fide fiduciary standard, no principal trades and would allow no commission business,” according to Bullard.

The law students who are working on SROIIA have been polling RIAs about their preferences for an SRO if that is the route the SEC and lawmakers take for RIA regulation and they have some “preliminary results.” When RIAs were asked if they had to join an SRO, would they join a new SRO, 86% said yes; join FINRA, 7.7% said yes," says Bullard. "Would they join an SRO that prohibited principal transactions? Yes, 95% said.”

The National Association of Personal Financial Advisors (NAPFA) will be “providing funding for research on SRO structures” by Bullard’s students he says, noting that SROIIA is currently “on the brink of 501(c)3 status.