NAIFA Supports FINRA to Examine Investment Advisers
The NAIFA Board has voted unanimously to recommend that FINRA serve as the self-regulatory organization (SRO) to conduct examinations of Securities and Exchange Commission-registered investment advisers.
In response to a directive in the Dodd-Frank Act, the SEC issued a staff study earlier this year about enhancing the investment adviser exam process. The SEC has stated that it lacks the necessary funding to effectively increase its oversight and examination of RIAs, so it offered three options for Congress to consider in order to address the enforcement gap: authorize one or more SROs to examine advisers; impose fees on advisers to fund SEC exams; or authorize FINRA to examine dually registered advisers.
According to a survey conducted by LIMRA International, 27 percent of NAIFA members are investment adviser representatives. Of these, nearly all are dually-registered as registered representatives of broker-dealers, and thus, already subject to FINRA regulatory oversight. Only 1 percent of NAIFA members are registered investment advisers not currently under FINRA’s regulatory jurisdiction.
NAIFA President Terry Headley said of the Board’s decision, “Our goal in supporting FINRA as the SRO is to achieve efficiencies and avoid unnecessary duplication in the examination of dually-registered NAIFA Members. Simultaneous broker-dealer and registered investment adviser examinations would be less burdensome and intrusive than having to submit to different exams at different times in order to comply with different regulators. It just makes sense, in order to achieve cost-effectiveness and reduce the potential for an overlapping examination process.”
Background:
In written comments to the SEC on a related Dodd-Frank subject, NAIFA reported that FINRA examines 55 percent of broker-dealers each year, and NAIFA members who are registered representatives are subject to an annual compliance review. In contrast, the SEC has reported that only 9 percent of RIAs face SEC examinations annually and a full one-third of RIAs have never been examined.
NAIFA’s comments were written in response to the NAIFA supported Dodd-Frank requirement that the SEC examine how the suitability standard governing broker-dealers is applied and enforced relative to the fiduciary standard governing investment advisers. Dodd-Frank required the SEC to conduct the review before they move forward with any proposal to establish a harmonized fiduciary duty for broker-dealers and investment advisers whey they provide personalized investment advice to retail investors. NAIFA comments stated that the notion that investment advisers are subject to a superior consumer protection standard is a myth. NAIFA stated that the suitability standard is robust and heavily enforced, and provides for a business model that serves Main Street investors.
NAIFA Staff Contact: Jill Hoffman, Assistant Vice President – Federal Government Relations, at (703) 770-8158; or Gary Sanders, Vice President – Securities and State Government Relations, at (703) 770-8192.
