I don’t normally applaud AdvisorOne’s coverage, due to my obvious bias, but Melanie Waddell’s Feb. 7 article “FINRA Shifts SRO Fight to Senate” is worthy of exception, both because the congressional debate over RIA regulation is an important issue, and because as far as I can tell, all the other media outlets covering the advisor space seem to have gotten the story wrong.
While Financial-Planning.com announced “FINRA Drops Bid to Regulate RIAs” (Feb. 7) and Investment News.com reported “FINRA Calls Ceasefire on RIA Oversight” (Feb. 7), only Melanie seemed to have understood FINRA CEO Richard Ketchum correctly when he said in a Feb. 6 Reuters interview: “We’re realistic enough to know that there doesn’t appear to be a strong momentum to move forward in Congress [on an RIA SRO].”
In fairness, references to our national legislators can be a bit confusing. The word “Congress” is sometimes used to refer to both houses of Congress: the House of Representatives and the Senate. Yet inside the Washington D.C. beltway, where the RIA reregulation drama is being played out, “Congress” invariably refers to the House (whose members are called congressmen and congresswomen), while the “Senate” refers to, well, the Senate. So, when Mr. Ketchum told Reuters “I’m not a big believer in banging a head [sic] against the wall; we’ll focus on things we can impact,” when combined with his earlier quote, it may have sounded as if FINRA was moving its bid to become the SRO for RIAs onto the back burner.
But what Ketchum really meant, as Melanie reported, was “FINRA would forgo, for now, its attempts to get the House Financial Services Committee to revisit this year Bachus’ SRO bill.” Then she went on to quote various sources, including Ron Rhoades, who pointed out that “FINRA has been trying for several months to quietly obtain sponsors for an SRO bill in the Senate, rather than in the House.” Rather than throwing in the towel, it seems that FINRA has simply shifted the fight to a new venue.
The broker-dealer SRO, it seems, has set it sights on a new strategy: garnering bipartisan support in the Senate for its oversight of RIAs, under the notion that Republicans in Congress (the House) will be too distracted with other things (such as the federal deficit) to put up much of a fight, and will simply fall in line. FINRA is nothing if not resourceful.
If this seems to be a bit of a desperate plan, after having gone “all in” with its attempt to get its SRO bill through the House Financial Services committee, I’m guessing it probably is. FINRA—both recently and in its former life as the National Association of Securities Dealers—has a history of being better at recognizing genuine threats to the brokerage business than it has been at doing something about them.