Legislation has been introduced that will lay the groundwork for the Financial Industry Regulator Authority to become a self-regulatory organization for investment advisers.
The bipartisan bill was introduced by Rep. Spencer Bachus, R-Ala., chairman of the House Financial Services Committee, and Rep. Carolyn McCarthy, D-N.Y.
Industry officials said a vote on the bill could occur as early as next month.
The bill was introduced in the face of a study by the Boston Consulting Group and commissioned by advisory trade groups which found that creating an SRO would cost at least twice as much as providing the Securities and Exchange Commission with adequate funds to examine advisors.
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The legislation has strong support from members of the National Association of Insurance and Financial Advisors and the Financial Services Institute.
According to NAIFA officials, the Securities and Exchange Commission only examines nine percent of investment advisers each year.
In comparison, according to NAIFA officials FINRA examines 55 percent of broker-dealers every year, and all registered representatives are subject to annual compliance reviews by their broker-dealers.
Approximately 33 percent of investment advisers have never undergone SEC examinations, NAIFA said.
“The Bachus-McCarthy legislation would provide an important consumer protection,” said NAIFA President Robert Miller. “Public faith in all financial professionals depends on intelligent regulation that provides appropriate oversight without creating overwhelming compliance burdens.”
Miller noted that having not examined a third of investment advisers has created a trust gap between consumers and the SEC.