SRO Supervision for Investment Advisers?

January 14, 2008

In today’s issue of Investment News, there’s a report that an official of the Securities Industry and Financial Markets Association [“SIFMA”] is suggesting that “the SEC should consider whether investment-adviser-only firms should be subject to supervision by a self-regulatory organization [i.e. Financial Regulatory Authority or “FINRA”] so that customers are assured the high level of supervision and oversight that brokerage customers already have.” These comments are apparently in response to the recent release of the recent report prepared by the Rand Corporation, which primarily concludes that experienced investors do not understand the difference between an investment adviser and a broker-dealer.

The comments by the SIFMA official are somewhat puzzling since the Rand Corporation did not evaluate whether the SEC’s regulation of investment advisers under the Investment Advisers Act of 1940 was more or less effective than the FINRA’s regulation of broker-dealers pursuant to the Securities and Exchange Act of 1934. An alternative perspective to SIFMA and interesting question to a concerned policymaker is whether investors would be better served by the SEC and/or Congress more broadly defining investment activity that falls under the jurisdiction of the Investment Advisers Act of 1940 and thereby obligating such firms to act as fiduciaries to their clients.

Investment advisers should stay tuned into this issue since this is undoubtedly the start of another round of the ongoing debate concerning how the SEC should regulate broker-dealers relative to investment advisers.

Posted by Bryan Hill
Labels: SEC