A stronger, better regulatory system for financial advisors was one of
the items for improvement listed in the 2010 Dodd-Frank financial reform
law. The law instructed the SEC to study the situation and to provide
Congress with recommendations for improvement. As reported in a Jan. 23InvestmentNews article, the SEC delivered the requested report late last Wednesday (“SEC
offers 3 options for RIA oversight”).
According to the article, the SEC offered three options for improved regulations:
#1. Congress could authorize the SEC to impose fees on advisors that would
be used to fund the SEC’s examination and enforcement efforts. The new law requires the SEC to begin monitoring advisers to hedge funds
and private-equity funds - a task that the SEC cannot do effectively with
its current resources. The Commission says an increase in fees could help
fill the funding holes.
#2. Congress could allow the SEC to designate one or more of the self-regulatory
organizations to oversee advisors. The SEC study makes it clear that a lack of funding is a serious threat
to the SEC’s ability to effectively examine all investment advisors.
If Congress prefers not to authorize the imposition of fees on advisors,
the establishment of a separate agency to take on the responsibility of
conducting the examinations may be a good option.
#3. Congress could grant FINRA the power to expand its oversight to include
registered investment advisors of dually registered firms (those who have
both advisors and broker-dealers). While this option is rife with controversy, it also has many vocal supporters.
None of the recommendations is without its industry critics, and debate
over which course of action is the best will likely continue for some time.