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News March 14, 2011 Issue

Independent Adviser SRO Announced

Mercer Bullard has done it again.

Not only is he the founder of Fund Democracy, a charter member of the SECís Investor Advisory Committee, and a University of Mississippi School of Law (UMSL) professor, heís now also the project adviser for the nationís first self-regulatory organization for independent investment advisers.

The SROIIA ("sir-oy-uh" as the press release notes) will be created by the UMSLís Business Law Society (BLS) to provide a "real alternative" to a FINRA-operated SRO. "The creation of an SRO for investment advisers is more likely than not, and many advisers will be looking for a real alternative to FINRA," said Bullard.

The press release notes that the SECís study on the examination of advisers produced pursuant to Dodd-Frank Act Section 914 "has recommended that Congress consider authorizing the creation of an SRO for investment advisers." FINRA is "poised" to assume that role, but the BLS believes advisers deserve an alternative.

The BLS intends to survey advisers asking for their input on the SRO. Various operational and policy approaches for SROIIA are being explored, including:

  • Bona fide fiduciary standard over the broker-dealer "best interest" or suitability standard;
  • 100 percent adviser inspection rate based on tailored interactions rather than "one-size-fits-all, bi-annual examinations";
  • Active compliance assistance program rather than deficiency-based evaluations;
  • Addressing conflicts of interest by prohibiting various practices, such as principal transactions and revenue sharing; and
  • Client-centered professional testing that extends beyond securities-related advice to financial planning competence.

The survey results will be used to develop an SRO structure that is "customized to reflect fundamental differences between the business practices of FINRA members and those of independent investment advisers." The SEC needs help in this area, said BLS member Timothy Collins. SROIIA will provide expertise at the highest possible level for investor protection, while easing burdens on the SEC.

"This idea has wheels," said Bullard.