The Investment Adviser Oversight Act of 2012 is meant to address what proponents say is a serious gap in investor protection. Sure enough, industry groups from all side weighed in on whether the idea will help or hinder the profession.
For its part, the Financial Services Institute, the industry organization for independent broker-dealers, praised the new step.
"Hard-working American investors shouldn't have to be regulatory experts to know whether their financial advisor is getting the proper oversight needed to ensure they're protected,” said Dale Brown, the president and CEO of the FSI. “From a business standpoint, retail investment advisers have an unfair advantage over independent broker-dealers, who are examined by FINRA every two years. It's time to protect investors and level the play field."
Other industry groups has also spoken out:
SEC Chairman Mary Schapiro, in testimony before the Capital Markets, Insurance and Government Sponsored Enterprises Subcommittee, July 14, 2009:
“Self-regulatory organizations, with close oversight from the federal government – can bring tremendous value to the protection of investors. So, it's an area we are willing to explore because even though our budget is growing, we're likely to never have all the resources we need to do everything that we'd like to do and the extent to which we can leverage SROs, accounting firms, whistleblowers, I am game to do that because I think it will allow us to do a better job.”
Financial Planning Coalition:
“We oppose the legislation introduced in the House Financial Services Committee. As a recent Boston Consulting Group study found, outsourcing SEC oversight to a new SRO would be twice as expensive as directing adequate resources to the current SEC oversight program. Building on the SEC’s existing infrastructure and experience is a better option than creating an added layer of regulation, and could be accomplished more quickly and effectively, and at far less cost. Investment advisers are overwhelmingly opposed to a FINRA SRO. More than 80% of advisers surveyed said they would prefer continued SEC oversight to being regulated by FINRA, an SRO for broker-dealers. We look forward to working with the Chairman and the Committee to find an effective way to address the oversight issue without unduly burdening investment advisers. More frequent examinations will help weed out bad actors who would harm investors and undermine the trust that advisers work so hard to earn.”
Robert Miller, president of NAIFA:
“When the SEC has never taken even a cursory look at a third of investment advisers, that creates a trust gap with consumers. Just over 25 percent of NAIFA members are investment advisers, and 99 percent of these are also registered reps subject to FINRA oversight,” said Mr. Miller. “Having FINRA serve as the SRO for investment advisers would be the least disruptive and most cost-efficient option for these dual-registered NAIFA members.”
“The bill recognizes the need for regular exams of investment advisers, while rightly focusing on retail accounts. As FINRA has said, the current level of IA exams is unacceptable, and SROs can help fill this untenable gap in the protection of investment advisory clients."