To become the industry’s SRO, FINRA estimates it will cost roughly 15 times less in start-up costs than estimates in a study commissioned by the Financial Planning Coalition, which includes CFP Board, FPA and NAPFA.

“This investment builds upon FINRA’s established, nationwide program for examinations currently in place, district offices across the country and ability to leverage existing infrastructure, technology and staff,” according to a FINRA statement.

It would cost $12 million to $15 million to start up the SRO and another $150 to $155 million in annual expenses going forward, the authority estimates. This compares with estimated start-up costs of $200 to $255 million and ongoing annual costs of $460 to $510 million in a Boston Consulting Group study completed last year for the coalition.

The Boston Consulting Group uses base costs for establishing critical components of the SRO “from scratch,” FINRA says.

“While FINRA would need to hire additional staff to serve as an SRO for investment advisers, we believe BCG vastly underestimated our ability to leverage existing staff, district offices and the technology underlying our existing nationwide examination program,” according to the FINRA statement.

Other explanations for the higher estimates include the following: “BCG used existing FINRA regulatory and user fee totals to estimate examination program costs. This combination of fees currently supports a wide variety of programs beyond just exams. Secondly, they used current SEC numbers to estimate the number of annual exams per examiner, which is less than current FINRA ratios.”

The Coalition says it is analyzing FINRA’s numbers but that they don’t add up.

“[I]t is hard to compare FINRA’s page-and-a-half analysis, which lacks any backup assumptions or data, with the comprehensive, 38-page [BCG] study … which utilized publicly available data, including FINRA’s actual costs, the SEC's actual IA examination costs and was based on rational and fully disclosed assumptions,” according to a coalition statement.

It appears that FINRA uses different assumptions regarding examiner productivity and cost per examiner than its own current, publicly available data show, the coalition says.

“They also left out the cost estimates for the legally-required oversight by the Securities and Exchange Commission (SEC), which BCG estimated at $90 to $105 million and which is an essential component of the overall cost of an SRO,” according to the coalition statement. “They also did not include $130 million in annual enforcement costs that are required under the Bachus-McCarthy legislation. The limited budget that they attribute to setting up a FINRA IA-SRO raises concerns about its independence and ability to understand and meet the unique needs of IAs and their clients.”

FINRA says it bases its assumptions on a universe of 14,500 firms and an anticipated staff increase of approximately 900 people, the vast majority of which would be examinations staff. The annual ongoing cost reflects this full staffing estimate, even though the staffing is unlikely to be complete in the first year.

This estimate also includes overhead and support costs for examinations and enforcement. It does not include costs for testing, advertising review or dispute resolution, FINRA says.

“If Congress or the Commission determine that those functions should be included, then the annual ongoing investment would increase by approximately $10 million,” according to the authority.

“Clearly,” the coalition counters, “…we are not comparing apples to apples. This [FINRA] document raises more questions than it answers.”


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