RJ and Makay

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The House Financial Services Committee (HFSC), led by chairman Spencer Bacchus (R-LA), introduced legislation yesterday that may lead the Financial Industry Regulatory Authority (FINRA) to become the self-regulatory organization (SRO) for retail investment advisors. In 2011, only 8% of investment advisors underwent SEC examination, compared to 58% of broker-dealers, according to an HFSC press release.  The Investment Advisors Act of 1940 would be amended by the legislation to enable the creation of National Investment Advisor Associations (NIAAs). NIAAs would register with the SEC and serve under SEC oversight.

Michael Oxley, the former Republican congressman from Ohio best known for co-authoring the Sarbanes-Oxley Act of 2002, has registered as a lobbyist for the Financial Industry Regulatory Authority (FINRA). His goal, as stated on his registration form: to work on the “harmonization of regulation of broker-dealers and investment advisors.”

Translation: to promote a self-regulatory organization (SRO) for investment advisors.

New recommendations by the Securities and Exchange Commission (SEC) about how best to regulate investment advisors are widely seen as a "punt" since the SEC provided no definitive advice on the issue. Rather, in a recent study, it suggested Congress take one of three steps:

• authorize the SEC to impose user fees on advisors to bolster its examination and enforcement efforts;
• allow the commission to designate one or more advisor self-regulatory organizations (SROs); or
• grant the Financial Industry Regulatory Authority (FINRA) the power to examine broker-dealers who are dually registered as investment advisors.

The SEC recommendations, mandated by the Dodd-Frank financial reform law, illustrated that the frequency of advisor examinations by the Office of Compliance Inspection and Examination (OCIE) has declined over the last six years. In 2010, for example, OCIE reviewed 9% of the 11,888 investment advisors registered with the agency.