A prominent House Republican is believed to be ready to propose that investment advisors be regulated by an organization that most likely would be FINRA, several sources say.
“It’s my understanding that a bill is likely to be introduced soon,” says Duane Thompson, a former managing director of the FPA who is now a senior policy analyst for Fi360, a firm with fiduciary training programs. Thompson adds: “But this is all subject to change.”
A spokeswoman for Rep. Spencer Bachus (R-Ala.), the chairman of the House Financial Services Committee who is said to be drafting legislation, would not discuss whether such a proposal was being prepared, nor would committee staffers.
“We’ve sort of been expecting it,” says Barbara Roper, director of investor protection at the Consumer Federation of America, who says she’s also heard that Bachus may announce legislation next week.
While any announcement would be sure to touch off a firestorm among advisors opposed to FINRA gaining such power, any legislative proposal soon becoming law is highly unlikely. While Bachus could likely round up Republican support in the GOP-controlled House, his efforts would likely end there unless a bipartisan bill was presented because the Democratic-controlled Senate and the White House would surely want their say, especially in a presidential election year.
The Consumer Federation of America, along with the CFP Board, the FPA and NAPFA, have supported SEC regulation of financial advisors, out of the belief that government is best positioned for this task. FINRA, which regulates brokerages, is accustomed to ensuring its members adhere to a suitability standard – not a fiduciary one, they say.
“This is a tough issue for us because we have traditionally opposed creating a SRO for advisors,” Roper says. “We as a general principle think you ought to fund government to do the job you want government to do. But the reality is that Congress has made it more than clear that it is not going to do that. So, do we continue to just say no? I’m not sure it makes sense for us to go on indefinitely opposing some kind of SRO for advisors.”
She adds that she’s long supported increased funding for oversight. “Twenty-five years later I’m still looking at inadequate funding for investment advisor oversight,” she says. A proposal in which advisors would pay fees to help fund SEC oversight is a move that, Roper says, she would more likely endorse.
Earlier this year, FINRA hired as a lobbyist former Rep. Michael Oxley, one of the sponsors of the Sarbanes-Oxley corporate financial disclosure act. FINRA is seen by many as wanting to expand its authority to regulating advisors from regulating brokerages. As the former Republican chairman of the House Financial Services Committee, Oxley is believed to have the ear of Bachus, according to one insider who requested anonymity.
“Oxley is going to have access to Bachus and use all of his persuasive powers,” the source says. FINRA “is paying him good money to get this done.” Oxley could not immediately be reached for comment.
The results of the November elections would help decide any bill’s fate. House Financial Services Committee member Barney Frank, a Democrat, has made it clear he does not trust SROs, but he is retiring.
“I don’t reasonably think that this is the year that this will all get decided,” Roper says.
Ann Marsh writes for Financial Planning.