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

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According to University of Mississippi School of Law Professor Mercer Bullard, the question of who will regulate investment advisors “is the most important thing in advisors’ lives in the next year.”

In the SEC’s “Study on Enhancing Investment Adviser Examinations,” one of the recommendations for adding more oversight for registered investment advisors (RIAs) was to allow one or more self regulatory organizations to oversee them.

FINRA, the broker-dealer self-regulatory organization, has stepped up to volunteer that it would like to oversee not only broker-dealers (BDs), and dually registered BD-RIAs, but independent RIAs as well. Bullard (left) sees FINRA regulation of the independent RIAs as the “worst case scenario.”


Instead, he and a group of his law students at Ole Miss have proposed a startup SRO for RIAs, SROIIA, the Self-Regulatory Organization for Independent 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.


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