Bill Introduced to Have FINRA Oversee Investment Advisors

Friday, April 27, 2012

On Wednesday, April 25, 2012, House Financial Services Committee Chairman Rep. Spencer Bachus (R-Ala) and Rep. Carolyn McCarthy (D-N.Y.) introduced legislation that, if passed, could make FINRA the self-regulatory organization for financial advisers.  Investment Adviser Oversight Act of 2012. Presently, the SEC has oversight of financial advisers.  The bill would permit the creation of one or more self-regulatory organizations, known as National Investment Adviser Associations, which would report to the SEC. Advisers with retail clients would be required to belong to one of the associations and pay membership dues. 

For any number of reasons, the SEC has been unable to adequately examine the overwhelming majority of investment advisers. The statistics speak for themselves.  There are approximately 12,000 registered advisers in the U.S., the vast majority of whom never undergo regular examination by the SEC.  According to Rep. Bachus, the average SEC-registered investment adviser can expect to be examined less than once every 11 years” and “only 8 percent of investment advisers were examined by the SEC in 2011, compared to 58 percent of broker-dealers. “

Critics of the bill believe that building on the SEC’s existing infrastructure and experience is a better option than creating an added layer of regulation.  Proponents of the bill cite the need for regulation, particularly given that many consumers have little if any understanding of the different titles that investment professionals use.  Proponents of the bill believe oversight by FINRA would increase protection for investors by subjecting advisers to at least the same level of scrutiny as broker-dealers.

Whatever the outcome, it will be interesting to watch this unfold. According to industry officials, a vote is expected as early as May 2012.  Please contact John Cronan at 207.791.3000 for more information or with any questions.

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