Hearing for Investment Adviser SRO Bill Scheduled for June 6

June 04, 2012

A hearing for the controversial Self-Regulatory Organization (“SRO”) bill submitted by Representative Spencer Bachus(R – AL), Chairman of the U.S. House Financial Services Committee, is scheduled to be heard on June 6th at 10 a.m. EST.

The SRO bill was introduced by Rep. Bachus and Rep. Carolyn McCarthy (D – NY) in April 2012. Officially titled as the Investment Adviser Oversight Act of 2012, the bill would amend the Investment Advisers Act of 1940 to include SROs for all investment advisers.  Under the bill, every investment adviser currently registered with the U.S. Securities and Exchange Commission (“SEC”) or a state securities regulator would be required to register with a SRO.

Although the investment adviser SRO bill has bipartisan support, several representatives have voiced their opposition to the proposed legislation.  Recently, Rep. Maxine Waters (D – CA), the second highest ranking Democrat on the House Financial Services Committee, expressed her preference in an article written by Investment News that the SEC continue in its role overseeing investment advisers.  Moreover, Rep. Barney Frank (D – MA), the highest ranking Democrat on the House Financial Services Committee who has announced his retirement at the end of this term, also expressed his opposition to the bill earlier this year according to the article. Rep. Waters advocates more funding for the SEC so it can increase the frequency of adviser examinations. Currently, only about 9% of advisers are examined each year by the SEC while the number for broker-dealers who are examined by FINRA is 58%. Additional funding could be used by the SEC to hire staff to increase the number of examinations done each year.

Some investment advisers oppose the SRO bill because it would increase costs, potentially put many small firms out of business and create an “unnecessary” layer of regulation. State regulators also oppose the legislation. Jack Herstein, head of the North American Securities Administrators Association (“NASAA”), recently called the bill “overreaching” and said that “state registered investment advisers should be exempted from the bill. “

Two of the most popular custodians for investment advisers are coming out to oppose the bill. TD Ameritrade and Charles Schwab & Company issued statements opposing the legislation and provide information for investment advisers on their institutional websites on how to voice their disapproval with the legislation. A form letter opposing the bill is available for advisers on the TD Ameritrade Institutional website to print, fill out and send to their representatives. RIAbiz.com reported that Schwab executive Bernie Clark asked advisers to email him or tweet opposition to the bill.

While many within the investment adviser industry are speaking out against the bill, the Financial Services Institute (“FSI”), which represents independent broker-dealers and their reps, recently wrote a letter re-iterating its support of an SRO for investment advisers. In it, FSI cited a poll it conducted that showed 75% of its advisers supported an SRO for investment advisers. The opinion from FSI also supported FINRA as the best option for the SRO because the SEC is “fraught with problems.”

Stay up to date with RIA Compliance Consultants on news regarding this legislation.

Posted by Bryan Hill
Labels: NASAA, SRO