A new system for registered investment advisers could be in the works, and many financial planners are not happy about it.
The SEC is expected to request public comments soon on a so-called SRO, or self-regulatory organization. The Financial Planning Association is particularly concerned that the NASD, which regulates the brokerage industry, could be selected as the SRO for advisers.
The SRO would conduct routine inspections of advisers with more than $25 million in assets, a group that is now monitored by the SEC. Planners advisory work is regulated by the SEC, or by the states, for smaller advisers. But the NASD governs their brokerage activities.
"We would strongly object to the NASD being the SRO or overseeing the regulatory examinations of advisers," said David Yeske, FPA president. "Asking a sales organization that does not embrace full disclosure and does not endorse placing the clients interest ahead of the stockbroker, to assume inspection of fiduciary advisers, would not be in the best interests of consumers."
Details are scarce, since the SEC has not yet issued the request for comments. The FPA has gotten its information through informal discussions with SEC staff.
According to The Wall Street Journal, the SEC envisions the SRO overseeing the fund industry along with the thousands of advisers who sell the funds.
Yeske said its not right to lump advisers with fund companies.
"A financial planner doesnt advise a client on just mutual funds," he said. "For investment advisers, a SRO would be costly and possibly a step backward in consumer protection."
Susan Kaplan, a financial planner in Newton, Mass., said a new layer of regulation would be redundant, especially since advisers, overall, have a clean record.
"It's a knee-jerk reaction to the real horrors that have happened with Enron and a number of companies really taking advantage, and to the hideous stock market weve had for three years," she said.
Peter Tedstrom, a planner in Denver, said the regulatory change would not be all bad. "Its one of those things where its bittersweet," he said "We like regulation because it allows the consumer to feel comfortable in making choices.
"The other side of it is it generally means more work for us," which planners are not compensated for, he said. However, "it's always good to put the consumer in first place and help them feel comfortable in what we're doing."
Particularly with mutual funds, Tedstrom believes that there could be abuses within industry practices and that an SRO could help expose them.