RJ and Makay

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The Securities and Exchange Commission (SEC) announced yesterday that it is tightening its rule governing investment advisory performance fees by raising the net worth requirements for qualified investors by excluding the value of the investor’s home from the net worth calculation.  Under the current rule, registered investment advisors may charge clients performance fees if the client’s assets under management or net worth meet certain dollar thresholds.

Registered representatives won't have to operate under a fiduciary standard until at least the second half of 2012, and even that might be pushing it, says Richard Ketchum, chief executive of the Financial Industry Regulatory Authority (FINRA). For that change to occur, "the SEC would have to move through an implementation phase that would register one or more SROs (self-regulatory organizations)," Ketchum explained. "That process would take a period of time.”

On January 21, the SEC made formal recommendations for brokers and advisors to be held to a uniform fiduciary standard. It also proposed that FINRA be made the SRO for some investment advisors to help improve the regulation of that profession.

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.