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News April 30, 2012 Issue

The Latest Adviser SRO Threat – A Call To Arms

If you’re good with having an adviser SRO, read no further.

If the idea of additional, duplicative, and unnecessary regulation is not your cup of tea however, you might want to keep reading.

House Financial Services Committee Chairman Spencer Bachus (R-AL) and Representative Carolyn McCarthy (D-NY) have co-sponsored the Investment Adviser Oversight Bill of 2012, H.R. 4624, which would establish SRO oversight of advisers.

The bill responds to the findings in the SEC report mandated by Dodd-Frank Act Section 914, which studied possible methods of enhancing SEC oversight of advisers. The report offered three approaches:

  • enhanced funding of direct SEC oversight of advisers through the imposition of user fees;
  • establishing one or more SROs to perform examination and oversight functions; and/or
  • expanding FINRA examination authority to include dually registered broker-dealer/advisers.

This bill is the latest in a series of legislative moves taken by Chairman Bachus in favor of FINRA’s desire to become the SRO for advisers, and not just the dual registrants. Back during the mark-up sessions that produced the final form of the Dodd-Frank Act, Bachus notoriously introduced a brief amendment in the wee hours of the night that would have given FINRA back-door oversight authority over all SEC-registered advisers. That amendment was removed by voice vote in later sessions.

This time, Bachus sought to represent the bill as a bipartisan effort through democrat McCarthy’s co-sponsorship. The appearance of bipartisan support fades quickly after the headliners, however.

Former committee chairman Barney Frank (D-MA) sees no value in imposing an SRO structure on the adviser industry and opposes the bill. Frank observed that the question comes down to one of who should levy the fees on advisers for additional oversight of that industry. "Let the SEC do that," he said.

Senator Tim Johnson (D-SD), chair of the Senate Banking Committee that would be the next stop for the bill, doesn’t favor the SRO solution either. It has been reported that he is "not enthusiastic" about the bill, and would be unlikely to include it on his committee’s agenda this year.

Still, the Investment Adviser Association (IAA), along with other adviser industry trade associations, is leading an aggressive effort to derail the bill. "With formal introduction of this bill, the battle is joined and it is incumbent upon investment advisers to clearly voice their opposition to this ill-advised legislation," said IAA executive director David Tittsworth. The Financial Planning Coalition, which also opposes the bill, said in a statement that "building on the SEC’s existing infrastructure and experience is a better option than creating an added layer of regulation, and could be accomplished more quickly and effectively, and at far less cost."

If the bill has uncertain support in the House, and indications of even less support in the Senate, why worry about it?

Why is it important to act now?

IAA vice president for government relations Neil Simon made the case. "This is the start of what will be a long-term fight," he said. FINRA and the bill’s proponents are laying the foundation for a battle that will begin anew in the next session of Congress. It is critical at this early stage that the opposition to this bill makes its voice heard so that the bill doesn’t progress further at this stage. "Voicing opposition now puts Members of Congress on notice that this is not the right solution to the problem," said Simon.

The IAA is leading the charge, so if you’re a member, you’ve already gotten the word to write your Members of Congress. The Financial Planning Coalition has also been out in front with its anti-SRO position. Find more information about how to take action at