SRO Bill May See July Vote; SEC Gets Glint of Hope for Extra Funds

A day before the SRO hearing, the House Appropriations Committee allotted $1.37 billion to the SEC for fiscal year 2013—$195 million below President Obama’s request—and an amount that industry officials agree will starve the SEC of the necessary funding to boost oversight of advisors.

During the June 6 hearing, the co-sponsor of the SRO bill, Rep. Carolyn McCarthy, D-N.Y., stated: “Would I like to get more money for the SEC? Yes, I would. But we are not going to get the money for the SEC; it’s not going to happen.”

The SEC requested $1.57 billion for fiscal 2013, an increase of $245 million above the agency’s fiscal 2012 appropriation, which the Senate Appropriations Committee granted on Tuesday.

Barry of FPA says that with the Senate appropriation, “it’s encouraging that there’s still some will on Capitol Hill to improve oversight through funding the SEC. That’s the simplest and most effective approach and it won’t cost taxpayers because the money comes from transaction fees.”

Barry says “some of the increase” in the Senate committee’s planned allotment “will go to advisor oversight.”

Thompson of fi360 adds that “even in the unlikely event the Senate version [of the SEC funding bill] was approved, that still won’t end the debate over the advisor SRO.”

Opponents of an SRO for advisors—particularly if that SRO turns out to be the Financial Industry Regulatory Authority (FINRA)—cite insufficient oversight by the SEC and Congress, conflicts of interest and excessive costs. Indeed, a quick poll conducted before the June 6 hearing by TD Ameritrade of advisors who custody assets with the firm found that the overwhelming majority—90%—of the 310 advisors polled preferred SEC or state oversight of advisors and were opposed to FINRA as an SRO.

Advisors responding to the TD Ameritrade poll also offered the following opposing comments to an SRO:

• “There is an increased need for oversight to come from industry educated AND experienced individuals. Increasing regulation by those who do not have a complete understanding of the industry is killing jobs, good firms, and hurting the end client.”

• “I am deeply concerned about FINRA or an SRO being authorized as the regulator for registered investment advisors. I believe there is an inherent conflict of interest in allowing the FINRA members (mainly wirehouses and broker-dealers) to regulate RIAs. These firms have a vested interest in maintaining their commission sales brokerage platforms, which I think places them at direct odds with RIAs. This is apparent in the way they have fought against fiduciary standards for brokers. I’m hopeful that the states and/or the SEC continue to provide regulatory oversight.”

• “I have a small practice and am concerned that I would be forced out of business if fees were raised significantly. Also I value my fiduciary role as an RIA and do not feel that FINRA is an appropriate regulator for registered investment advisors due to its association with and focus on the brokerage industry.”