Independent financial advisors are deeply committed to their clients and are proud of the level of service they provide. When a Main Street investor sits down to discuss his or her financial future with an advisor affiliated with an independent financial services firm, they can have confidence that the professional across the table has been examined on a regular basis by their broker-dealer compliance department, FINRA and the SEC.
What many investors don’t realize, though, is that this level of examination doesn’t exist for all advisors offering that same advice.
This gap exists because, under current conditions, broker-dealer affiliated financial advisors and independent RIAs operate under a fragmented regulatory framework, with FINRA regulating broker-dealers and the SEC overseeing RIAs. The SEC lacks the resources to adequately oversee the RIA sector, as the agency concluded itself in a study it conducted under Dodd-Frank. As a result of this regulatory patchwork, RIAs are only examined, on average, once every 11 years; Here is another astounding statistic: according to the SEC, nearly 40% have never been examined at all.
The current fragmented system of oversight creates risks for Main Street investors that are clearly unacceptable. Fortunately, leaders in Congress and within our industry are aware of this problem, and are working toward a solution.
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Dodd-Frank, as imperfect and, often, infuriating as it is, nonetheless mandated that the SEC study and make recommendations to Congress for reforming the current regulatory system to protect Main Street investors. In order to address that law, on April 25, House Financial Services Committee Chairman Spencer Bachus (R-Ala.) introduced legislation that would accomplish this vital goal by creating a self-regulatory organization (SRO) for RIAs. The legislation, if signed into law, would dramatically improve oversight for RIAs and ensure a much greater degree of consumer protection.
We applaud the bipartisan efforts of Chairman Bachus and the House Financial Services Committee to remedy this urgent regulatory imbalance. FSI has long called for a single SRO to oversee both the broker-dealer and RIA segments of the industry, as well as for a properly structured and uniform fiduciary standard. And our members agree: a recent FSI poll of over 2,000 financial advisors showed that roughly 75% of them favored an SRO for RIAs.