The National Association of Personal Financial Advisors (NAPFA) recently released a statement on the potential negative effects of H.R. 4624, the Investment Adviser Oversight Act of 2012, (Investment Adviser Oversight Act). NAPFA says this bill will “allow the foxes to run the henhouse.” NAPFA is alluding to the belief that if the bill is passed and a self-regulatory organization (SRO) is created for investment advisers, it will be the Financial Industry Regulatory Authority (FINRA).
NAPFA is sounding the alarm because NAPFA believes that if FINRA becomes the SRO for investment advisers it “would be allowed to obtain a stranglehold over advisors by charging huge annual registration fees, create a hornet’s nest of rules that would make sound advice by independent advisors nearly impossible to economically provide, and limit transparency and accountability.”
NAPFA lists eight ways that oversight by FINRA would hurt investment advisers and investors:
1. FINRA’s exorbitant operating expenses and bloated salaries make them more Wall Street than Main Street.
2. FINRA’s mandatory membership fees will put many independent financial advisors who offer advice to middle-class savers out of business.
3. The burden of making small business owners pay mandatory fees to fund FINRA salaries is unconscionable.
4. FINRA is not subject to Sunshine Laws and doesn’t have to hold open meetings.
5. FINRA is not subject to the Freedom of Information Act and is notoriously secret about their books and records.
6. FINRA is an organization run by Wall Street’s executives who, with a “wink and a nod,” purport to oversee their Wall Street colleagues. This is like ENRON overseeing CPAs, or drug companies overseeing your family physician.
7. FINRA has no experience working with financial advisors held to the high fiduciary standard.
8. FINRA acts like a government authority, but without government accountability.
NAPFA supports a properly funded U.S. Securities and Exchange Commission (SEC) as the best option for investment adviser oversight. According to NAPFA National Chair Susan John, CFP® it “is the best way to ensure investment advisers are truly working in the best interests of those they serve — with accountability and transparency.”