Draft Bill Calling for SRO for Advisors Introduced in House

The House Financial Services Committee on Thursday released a draft bill that would establish one or more self-regulatory organizations (SRO) to oversee investment advisors. Washington insiders expected the committee to release the draft legislation after its Sept. 13 hearing on the issue. 

With the exception of the Financial Services Institute (FSI), industry trade groups were quick to oppose the draft bill, which was introduced by House Financial Services Committee Chairman Spencer Bachus, R-Ala., and which would amend the Investment Advisers Act of 1940 to provide for the registration and oversight of national investment advisor associations, i.e., SROs. The draft states that advisors would have to be members of the SRO, which would report to the Securities and Exchange Commission (SEC).

Blaine Aikin, CEO of fi360, said in statement that “in general, fi360 opposes the bill and still believes that funding the SEC is the right direction for oversight” of advisors. If there is bright spot in the draft bill, he continued, “it is that the proposed bill calls for one or more SROs, rather than the alternative of a single SRO, FINRA,” the Financial Industry Regulatory Authority. However, he said, “at a minimum, before something like this legislation is enacted, we would hope that Congress would walk its own talk and call on the GAO to perform a cost-benefit analysis.”

Marilyn Mohrman-Gillis (left), managing director, public policy for the Certified Financial Planner (CFP) Board of Standards, told AdvisorOne on Thursday that the authorization of an SRO to oversee advisors doesn’t address the real problem, which is how to increase investment advisor exams. “We don’t believe that creating this whole new bureaucracy” via an SRO addresses the advisor examination issue in a cost-effective manner, she says. Advisor oversight should “remain at the SEC, and the [agency] can increase its examinations of advisors with a revenue increase—and that can be done off budget.”

David Tittsworth, executive director of the Investment Adviser Association (IAA), says that IAA “respectfully disagrees with the approach suggested in the discussion draft.” IAA, he says, believes “that the SRO model has demonstrated a lack of accountability and transparency, unnecessary and excessive costs, a poor track record, and, in FINRA’s case, a bias favoring the broker-dealer model.” He went on to say that IAA would “prefer the user fee option [to fund advisor exams] outlined in the SEC staff report issued in January under Section 914 of the Dodd-Frank Act.”