The Financial Services Institute issued a letter arguing an SRO modeled after FINRA is best of all alternatives, and FINRA rebutted criticism of its cost estimates for an investment advisor regulator.

FSI Chairman Joe Russo wrote in a letter to members, “FSI Uncut: SRO for RIAs,” that a FINRA SRO is an inevitable consequence of stepped-up regulations under the Dodd-Frank Wall Street Reform Act.

“While you won’t find any raving fans of Dodd-Frank at FSI, we also intimately know the political reality, and that is that the law is here to stay for the foreseeable future,” Russo wrote. He added that the bill would not be repealed even if Republicans won a super majority in the Senate, of 60 members. Republicans would have to control the Senate with 65 seats, to ensure that if any members abandoned the quest for a repeal, the party would have enough to get it to the president’s desk.

“Dodd-Frank recognized the regulatory gap that currently exists—only 8% of RIAs were examined by the SEC last year,” Russo, also the CEO of Advantage Financial Group in Cedar Rapids, Iowa. “That’s an average of once every 13 years; and nearly 40% of RIAs have never been examined.”

Problems within the SEC also shored up Russo’s opinion, according to the letter. The agency has come under scrutiny for a string of episodes, including leaving a beneficiary of Bernie Madoff in charge of liquidation. The regulatory is also under funded, and likely will remain so.

Russo was not alone in discussing money matters surrounding a proposed SRO for investment advisors. Late Friday, FINRA issued a rebuttal to Boston Consult Group’s comments that the SRO was substantially underestimating its cost estimates for setting up a new SRO.

Last year, the coalition released a study conducted by Boston Consulting Group estimating high costs if FINRA were to become the SRO: $200 million to $250 million in startup costs and $460 million to $510 million for ongoing operations. The coalition says these expenses could be passed on to advisors in annual fees to the tune of $51,700, or much more, per firm, depending on its size. 

The Boston Consulting Group claimed that FINRA’s estimate omitted the costs of SEC oversight, which might range from $90 million to $100 million, plus the mandatory costs of enforcement ranging from $60 million to $70 million. In its response, FINRA said it did not attempt to estimate the cost of SEC oversight of an investment advisor SRO, not did it purport to do so.

“FINRA’s estimates were limited to the investments we believe FINRA would need to make to run an exam program with the parameters described in our estimate,” the SRO wrote.