The House of Representatives refused to give FINRA rulemaking authority over many investment advisory firms.

On Friday, the House, in a voice vote, adopted an amendment to the Wall Street Reform and Consumer Protection Act that eliminates a provision that would have given FINRA rulemaking authority over many investment advisory firms.

"We are pleased that the House of Representatives recognized that it would be inappropriate for FINRA, the self-regulatory organization for broker-dealers, to exercise inspection and rulemaking authority over investment advisers,” David Tittsworth, executive director of the Investment Advisors Association, said in a prepared statement. The fight, however, is far from over, as FINRA will continue its lobbying efforts to extend its jurisdiction over investment advisers.  The Senate Banking Committee is still developing its regulatory reform legislation and it appears that the regulatory reform debate will continue into 2010."

Dan Barry, the director of government relations for the Financial Planning Association, said, considering there were a couple hundred amendments attached to this bill, the organization was glad the House “made this a priority.”

He said FINRA has wanted oversight for “some time. ” He added “we felt that they were not the appropriate regulator for investment advisers.”

“They are just not experienced in regulating that type of investment activity,” he said. “It would’ve been a significant ground shift if this was approved.”

Barry said that he expects FINRA will continue to try to get the oversight changed. He said he expects them to try to add an amendment to the Senate bill or “take a longer term approach.”

"The bill still calls for a study of how investment advisors are regulated and whether Finra can play a greater role.

“In the next year or two, I expect an SEC or an independent study to determine FINRA’s role and that could lead to another round of potential legislation,” he said.

Many investment advisors had been leery of FINRA supervision because broker-dealers adhere to a suitability-based standard of compliance. Investment advisors adhere to a higher fiduciary standard.

Currently, registered investment advisors are supervised by the Securities and Exchange Commission or by state securities commissioners and FINRA supervises broker-dealers. Unlike the SEC, FINRA is a self-regulatory organization.

U.S. Representatives Steve Cohen (D-TN) and Barney Frank (D-MA) sponsored the House amendment.