Broad fissures within the investment advisory community over how the industry should be regulated going forward were exposed today at a House hearing.
The hearing before the House Financial Services Committee was on H.R. 4624, the Investment Adviser Oversight Act, a bill which would shift regulation of investment advisors to a self-regulatory-organization (SRO) rather than directly by the Securities and Exchange Commission.
The hearing also brought up a new issue, the terminology that should be used in describing the entity that would take over oversight of investment advisors from the SEC.
In his testimony, Dale Brown, president & CEO of the Financial Services Institute, said he would not use the term SRO, but would instead say “independent regulator.”
That’s because there has been criticism of the independence and governance of the Financial Industry Regulatory Agency (FINRA), the most likely agency that would house the proposed new regulator of investment advisors.
“I am avoiding the terms ‘self-regulatory organization’ and ‘SRO’ because they are misnomers, implying that the industry regulates itself,” Brown said.
“This is simply not true under FINRA. FINRA’s governing board is comprised of a majority of non-industry public members and their staff are professional, experienced regulators,” Brown said.
He said the legislation would shift the responsibility for investment adviser examinations from the SEC to an independent regulator paid for by the industry, not taxpayers. “This would free up the SEC to regulate the regulator, as it has done for decades for the brokerage and municipal securities industries, among others,” Brown said.
Besides the FSA, representatives of the the National Association of Insurance and Financial Advisors (NAIFA) and the Securities Industry and Financial Markets Association (SIFMA) voiced support for the new overseer for investment advisors.
Also testifying in favor was Rep. Spencer Bachus, R-Ala., chairman of the panel and sponsor of the legislation.
Rep. Carolyn McCarthy, D-N.Y., is the other co-sponsor.
Testifying in opposition, however, were representatives of the Financial Planning Coalition (FPC), which is comprised of the Certified Financial Planner Board of Standards, Inc., the Financial Planning Association and the National Association of Personal Financial Advisors, as well as John Morgan, Texas securities commissioner, on behalf of the North American Securities Administrators Association, Inc (NASAA).
Thomas D. Currey, NAIFA, immediate past president said, “NAIFA members support smart, balanced regulation – regulation that provides appropriate consumer protections and effective and efficient oversight without creating compliance burdens that would impede the delivery of consumer financial services. H.R. 4624 satisfies those criteria.”
He added that, “NAIFA members who sell securities, by and large, are already subject to FINRA oversight.”
And further added that, “That’s not likely to change, so it just makes sense for our dually registered members to undergo broker-dealer and investment adviser examinations at the same time, by the same regulator.”