A Georgetown professor is offering another option in lieu of a self-regulatory organization for advisors: outsourcing routine advisor exams to external third parties, such as accounting and consulting firms.
In a paper to be released Friday, James Angel, associate professor at Georgetown University’s McDonough School of Business, argues that while an SRO is attractive in theory “because the industry presumably has the expertise to regulate itself,” designing an “effective SRO is problematic”—and costly.
What’s more, Angel told AdvisorOne in an exclusive interview Thursday, “At the end of the day a new SRO will look just like the Financial Industry Regulatory Authority,” FINRA. Any new SRO that is set up would, like FINRA, “continue to be micromanaged by the SEC and it would be run by people with SEC and FINRA experience,” he says.
Angel’s research paper, “On the Regulation of Investment Advisory Services: Where Do We Go From Here?,” which was supported through a grant from TD Ameritrade, proffers Angel’s conclusions about the worthiness of an SRO based on numerous conversations he conducted with brokers, regulators, advisors, scholars and industry trade groups.
The Dodd-Frank Act mandated that the SEC consider setting up an SRO for investment advisors, but the agency can’t move forward with an SRO until Congress enacts legislation telling it to do so. The idea of an SRO for advisors has raised much controversy among RIAs, broker-dealers, and industry groups as to which organization, if any, should be charged with that duty.
Skip Schweiss, managing director of advisor advocacy for TD Ameritrade Institutional, told AdvisorOne the same day at TD Ameritrade’s regional conference in Washington that Angel’s “independent analysis” of the SRO issue offers a “very interesting conclusion that will add substance to the [SRO] debate.” The use of external compliance reviews is a “fourth” option “beyond the three that are being debated in the industry today.”
A presentation of Angel’s paper and its external auditor option to about 30 advisors at the TD Ameritrade conference garnered a positive response, Schweiss says.