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Congress Hearing on Investment Advisor SRO

Thursday, September 15, 2011

On September 13th , the House Committee on Financial Services held a hearing to discuss forming a self-regulatory organization (“SRO”) for investment advisers. There have been three options floating around about this issue and the committee looked at these three options: (1) have the U.S. Securities and Exchange Commission (“SEC”) charge a user fee to help fund the need for more frequent regulatory examination, (2) create an independent SRO to regulate investment advisers, or (3) give FINRA the authority to serve as the investment adviser SRO. There were eight individuals that testified in front of the Committee. The breakdown of the opinions of these individuals was very interesting. You can see what their thoughts were in the chart below:

Name Position and Firm SEC User Fee Independent SRO FINRA as SRO
William Dwyer Chairman, Financial Services Institute X
Ken Ehinger President and Chief Executive Officer, M Holdings Securities, Inc., on behalf of the Association for Advanced Life Underwriting X
Terry Headly President, National Association of Insurance and Financial Advisors X
Steve Irwin Commissioner, Pennsylvania Securities Commission, on behalf of the North American Securities Administrators Association (“NASAA”) X
Richard Ketchum Chairman and Chief Executive Officer, Financial Industry Regulatory Authority (“FINRA”) X
*Barbara Roper Director of Investor Protection, Consumer Federation of America X X
John Taft Chief Executive Officer, RBC Wealth Management, on behalf of the Securities Industry and Financial Markets Association (“SIFMA”) X
David Tittsworth Executive Director/Executive Vice President, Investment Adviser Association X

*Barbara Roper felt the best option would be to give the SEC with the appropriate funding to improve investment oversight and to increase the frequency of regulatory examinations. However, since she did not believe this would happen, she felt the next best option would be to form an independent SRO. As you can see, these individuals were split about 50/50 on whether to make FINRA the new SRO for investment advisers. However, the Congressmen on the Committee seemed to favor the FINRA option. Those in favor of FINRA serving as the SRO cited effectiveness and cost efficiency as the key motivators. However, those in favor of an SEC user fee felt that creating a new investment adviser SRO would add another layer of bureaucracy and may not be in the best interests of the general public since SROs are run by their members and are accountable to their members. Click here for more information.

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