Friday, March 25, 2011

Future of Regulation of Investment Advisers Remains Uncertain

There is a lot of talk now in the financial community about the future of regulation of investment advisers. The Securities Exchange Commission, which currently regulates RIAs (registered investment advisers), does not have sufficient funding to effectively conduct such regulation and enforcement. The SEC recently outlined three options to Congress: (i) give FINRA the authority to regulate dually registered firms; (ii) authorize the SEC to impose user fees on advisers to fund examination and enforcement efforts; and/or (iii) designate one or more self-regulatory organizations to oversee investment advisers.

According to a recent InvestmentNews survey of almost 600 advisers, registered representatives, financial planners, insurance agents and others, 78% voted in favor of options (i) and (iii) above, i.e., increasing FINRA’s role in the regulation process. Interestingly, Michael Oxley, a former congressman known for being one of the sponsors of the Sarbanes-Oxley Act of 2002, has recently registered as a lobbyist for FINRA to promote self-regulation of investment advisers. FINRA is currently overseeing 4,560 brokerage firms and may be expanding its authority to investment advisers.

Congress hasn’t yet selected from among the three options presented by the SEC. Stay tuned…

In the meantime, on March 18, 2011, the SEC issued new interpretations to clarify some questions about the new Form ADV requirements for registered investment advisers. See here:

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