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Regulation and Compliance > Federal Regulation > SEC

Bachus SRO Draft Draws Sparks

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WASHINGTON BUREAU — Rep. Spencer Bachus is getting mixed reactions to a draft bill that would authorize one or more self-regulatory organizations (SROs) to oversee investment advisors that are registered with the U.S. Securities and Exchange Commission (SEC).

Bachus, R-Ala., is calling for the Financial Industry Regulatory Authority (FINRA), Washington, or another SRO to improve the registered investment advisor (RIA) examination process.

Section 913 of the Dodd-Frank Wall Street Reform and Consumer Protection Act has directed the SEC to look into applying the same fiduciary standard of care that now applies to investment advisors to broker-dealers and their representatives; Dodd-Frank Section 914 calls for the SEC to look into RIA oversight.

Terry Headley, president of the National Association of Insurance and Financial Advisors (NAIFA), Falls Church, Va., and Ken Ehinger, a board member at the Association for Advanced Life Underwriting (AALU), Reston, Va., said today at a hearing organized by the House Financial Services Committee capital markets subcommittee that the SEC should focus more on Section 914 and less on Section 913.

Ehinger testified on behalf of AALU that, instead of focusing on the fiduciary standard issue, the SEC should “give further attention to problems acknowledged by the Section 914 study of the lack of an effective inspection cycle for many investment advisors.”

“As the SEC is aware, some of the most dramatic failures in recent years on the retail brokerage-advisor side were not a result of the lack of rules governing financial professionals or the lack of a fiduciary duty of malefactors, but a failure of regulatory oversight,” Ehinger said.

Headley told the subcommittee that virtually all NAIFA members who are RIAs are already subject to comprehensive FINRA broker-dealer regulations as well.

Because the RIAs are already subject to FINRA oversight, authorizing FINRA to examine SEC-registered investment advisors would be the most efficient option for dual-registered NAIFA members, Headley said.

Bachus supports letting FINRA or another SRO, such as a new national investment advisor association, help with conducting RIA examinations.

Today, “investment advisers and broker-dealers often provide indistinguishable services to retail customers, yet only 9% of investment advisors were examined by the SEC in 2010, compared to 44% of broker-dealers,” Bacus said at the hearing.

RIAs and their groups would prefer to see the SEC focus on Dodd-Frank Section 913 and de-emphasize Section 914. A provider of fiduciary education materials, for example — fi360, Pittsburgh — is arguing that the SEC should be the sole body responsible for overseeing RIAs.

Duane Thompson, a senior policy advisor at fi360, said one concern is that the Bachus proposal creates a new bureaucracy to accomplish what the SEC could handle directly.

The only thing the SEC currently lacks to increase the effectiveness of exams is the resources that self-funding would provide,” Thompson said.

Other fiduciary standard coverage from National Underwriter Life & Health:


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