As action moves to Congress, a flurry of meetings and Schwab's appearance

January 14, 2011 — 3:05 PM UTC by Elizabeth MacBride


With the SEC set to issue a report widely expected to suggest its own ouster as advisors’ regulator, FINRA and others are already jockeying to make their own cases to Congress about what the regulatory future of advisors should be.

The SEC’s Dodd-Frank mandated report on whether an SRO would improve regulation of investment advisors is expected out as early as today, though most likely will be released to the public sometime next week. Because of the SEC’s budget constraints, most observers are expecting that the agency will recommend that a self-regulatory organization take over, though the report may also talk about user fees to fund the SEC.

Because switching oversight to an SRO requires action by Congress, organizations are already positioning themselves – most notably, FINRA, which has been holding a series of meetings with broker-dealer and advisory organizations. Observers believe the SRO for broker-dealers is preparing to hit the ground running with a fairly detailed proposal to Congress about why it should be the SRO, and what that SRO might look like.

“We are not going to discuss specific meetings we have had,” said a spokesman for
. “We have met with what we believe is every relevant party in this debate, including those who support our position on this issue and those who do not.”

Splitting off institutional advisors

Among the groups that FINRA has met with, said sources, is the Investment Company Institute, which opposes an SRO. That organization, which represents mutual fund companies, would not comment. But a meeting could be significant if it resulted in a FINRA proposal for an SRO that excluded institutional advisors, like those that advise mutual fund companies, from regulation.

Other groups, too, have been ramping up their attention to the issue. The Securities Institutions and Financial Markets Association on Jan. 12 sent a comment letter supporting an SRO for retail investment advisors but opposing one for institutional advisors; Schwab Advisor Services yesterday issued a statement against an SRO.

(See Schwab takes high-profile stand opposing self-regulatory organization for advisors).

Tea Party effect

The debate has heated up with changes in Washington, D.C., that have carved out a clearer path for a shift to FINRA oversight. Severe budget constraints could hamper the SEC’s ability to more frequently examine advisors; in addition, the Tea Party representatives are generally opposed to giving more power to regulators. And SRO might be a slightly more palatable option to them. (The 7 government actions that could reshape the advisory business in 2011).

“We’ve pretty much known from the outset that the SEC report would recommend that Congress authorize creation of an SRO for advisers,” said Barb Roper, director of investor protection for the Consumer Federation of America. “Moreover, this is an issue that could take off quickly in Congress, particularly given the budget situation and (Financial Services Committee) Chairman (Spencer) Bachus’s strong support for the idea. So, it would come as no surprise is FINRA was preparing for that eventuality by putting together a detailed proposal.”

(See: Everything an RIA needs to know about the reform agenda in Washington”:

Any measure would also have to pass the Democrat-controlled Senate and be signed by the president, probably more difficult hurdles than the House, said David Tittsworth, executive director of the Investment Adviser Association.

Though advisory organizations are still holding out hope that the SEC won’t recommend an SRO, or that it will leave the door wide open for other alternatives, sources said that they are preparing to regroup and possibly present their own SRO alternative to Congress. Such a proposal might not come until spring, said one source.

Could FINRA cooperate with advisory groups to form venture?

Skip Schweiss president of TD Ameritrade Trust Co., said he had even floated the idea to the SEC of an SRO that would be a cooperative venture between an advisory organization that would help set standards, and FINRA’s infrastructure.

“I had in mind that some organization, e.g. Committee for the Fiduciary Standard, fi360,, etc. that is familiar with the fiduciary standard practiced by RIAs would set the standards, then perhaps an organization likeFINRAcould lend its examination expertise/process/infrastructure,” he said.

A conference call yesterday held by the Financial Planning Coalition, comprising the Certified Financial Planner Board of Standards, the Financial Planning Association, and the National Association of Personal Financial Advisors, illustrated the extent to which the conversation has shifted from whether there should be an SRO to what it should look like.

In response to questions from reporters, Dan Barry, chief lobbyist for the Financial Planning Association, said there were a number of concerns about the structure of an SRO.

• Whether the SRO should be exclusively for investment advisors
• Whether it would be a majority public board
• The extent to which expertise would be required for staff

In an interview after the call, Marilyn Mohrman-Gillis, managing director of public policy for the Certified Financial Planner Board of Standards Inc., acknowledged the political reality, saying:

“If the SEC study seeks congressional authorization for one or more SROs for the oversight of investment advisors, the debate will move to what is the appropriate model for oversight of investment advisors. What should be the criteria? What should be the guidelines? How should it be structured?”

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