SEC Considering FINRA to Regulate Investment Advisors

Representing Investors Nationwide

The Securities and Exchange Commission (SEC) has been weighing competing interests for the regulation of registered investment advisers (RIAs). As it stands now, RIAs are regulated by the SEC but some feel there needs to be better regulation and more accountability to ensure the RIA’s are not given free reign to reek havoc in the client’s portfolios.

One suggestion is to transfer the regulation to the Financial Industry Regulatory Authority (FINRA). FINRA is a self-regulatory organization (SRO) that is comprised of member broker dealers and licensed representatives. FINRA agrues they are well positioned to take on the regulation of RIA’s. However, the RIA’s are not so sure. They like the less stringent regulatory environment afforded by the SEC and the very loose and sometimes prohibitively expensive arbitration system. Estimates show the SEC will only examine roughly 9% of all advisers this year. By contrast, FINRA requires all broker dealers and representatives adhere to strict compliance procedures, on-line training and regular compliance review.

However, the recently passed Dodd-Frank bill calls on the SEC to analyze adviser examination and enforcement, and to recommend whether Congress should authorize an SRO to increase the number of adviser examinations. The SEC’s report is due to be sent to Congress in January.

FINRA representatives have been lobbying hard stating they “believe there should be an SRO for investment advisers,” and “the layer of protection that exists in the broker-dealer space also should exist in the investment adviser space.” Plaintiff securities attorney no doubt agree more needs to be done to regulate and prosecute wrong doing by RIAs.

But the idea of Finra regulation does not sit well with many in the advisory business. RIA industry spokesmen argue FINRA regulation would lead to higher costs and heightened regulatory burdens for advisers. Finra argues the advisors simply want seeking less regulation.

The Attorneys at Colling Gilbert Wright & Carter specialize in prosecuting cases involving broker and advisor negligence and fraud. If you have or have had investment accounts with a RIA and believe they were managed improperly, please contact our offices. Thank you.