Skip to content

Financial Planning Coalition Reacts to Adviser SRO Regulation

According to the Financial Planning Coalition, the Investment Adviser Oversight Act of 2012 aims to create a new regulatory regime to govern the operations of small and medium-sized advisory firms and, at the same time, protect the rights of public investors. Under this regulatory regime, the Financial Industry Regulatory Authority (FINRA) will become the Self-Regulatory Organization (SRO), which will carry out the oversight of small and medium-sized advisory firms and conduct more frequent examinations of investment advisors.

The SRO’s priority is to protect the investors via the constitution of new rules and regulations that give utmost priority to ethics and equality. By putting this SRO into action, many small and medium-sized advisory firms will be burdened with more regulations and additional costs, which will hinder their potential rate of growth.

The Financial Planning Coalition disagrees with this proposed legislation and feels it is the wrong solution to deal with this issue of protecting investor rights. They believe there will be several negative consequences if this legislation is enforced. Firstly, small and medium-sized firms will feel a greater burden compared to more established firms. Secondly, this will increase the cost of state-registered investment advisors. And this, in turn, will discourage advisors from serving retail clients.

The Coalition also brought into focus the cost of putting this legislation into effect. The FINRA SRO would cost around $550 to $610 million a year, including approximately $100 million for Securities and Exchange Commission (SEC) oversight. The Coalition argues that the money will be better spent by having the SEC themselves increase examinations on investment advisors.

Other issues put forward by the Coalition in light of this matter include:

  • Address the lack of resources at the SEC
  • Increase the frequency of investment advisor examinations
  • Develop a solution that is efficient and effective – e.g., save cost by not establishing a new regulatory structure
  • Ensure fair treatment is given to all small, medium and large investment firms and advisors
  • Demonstrate that paying user fees to the SEC is more feasible than setting up an SRO
  • Propose that Congress continues to be responsible for overseeing and is held accountable on behalf of the SEC

In conclusion, the Coalition feels that it is vital to protect both the investors and small and medium-sized advisory firms. If this SRO legislation is put into effect, smaller investment firms will be put under greater scrutiny as compared to their larger counterparts. But, in truth, it is the large advisory firms that hold a substantial portion of investor assets.

Source: Financial Planning Coalition Says Investment Adviser SRO Legislation Offers Wrong Solution to Increase Investor Protections