The battle over whether there should be a self-regulatory organization (SRO) for advisors continues.
FINRA is now refuting a review that investment advisory trade groups had the Boston Consulting Group (BCG) conduct that challenged FINRA’s cost estimates in assuming the role of an SRO for advisors.
The review, which was released May 10 and conducted by BCG on behalf of the Certified Financial Planner Board of Standards (CFP Board), Financial Planning Association (FPA), Investment Adviser Association (IAA), National Association of Personal Financial Advisors (NAPFA) and TD Ameritrade Institutional (TDAI), said that FINRA’s one-and-a-half page estimate released April 25 underestimated overhead costs and overestimated investment advisor examiner productivity.
FINRA issued a statement after the BCG findings were released, saying, “until the Boston Consulting Group has at least one conversation with the SEC and FINRA about what it takes to run a nationwide examination program, their numbers should be viewed with skepticism and amusement. They are inventing the numbers out of thin air.”
The House Financial Services Committee will hold a hearing on June 6 on the redraft of Rep. Spencer Bachus’ bill calling for an SRO to oversee advisors.
On May 25, FINRA released a rebuttal of BCG’s findings that also pointed out what FINRA says are inaccuracies that BCG highlighted in its May 10 review of FINRA’s April 25 cost estimates in assuming the SRO role.
FINRA’s point-by-point rebuttal is as follows:
BCG: FINRA’s estimate omits the cost of SEC oversight ($90 million-$100 million) and the cost of enforcement ($60 million-$70 million), both of which are required by the legislation.
FINRA: FINRA did not attempt to estimate the cost of SEC oversight of an IA SRO—FINRA sponsored or otherwise—nor did FINRA purport to have done so. FINRA’s estimates were limited to the investments we believe FINRA would need to make to run an exam program with the parameters described in our estimate. The SEC is the only entity that could provide an insightful estimate of the anticipated cost of SRO oversight of one or more IA SROs. On the second point, BCG is incorrect. FINRA did not omit the cost of enforcement. Enforcement is included and that is clearly stated in the estimate.
The comparison FINRA provided was of BCG and FINRA estimates of ongoing costs excluding estimates for SEC oversight:
Ongoing mandate cost (annual cost excluding SEC oversight)