The Financial Industry Regulatory Authority (FINRA) announced last week that it has hired Michael Oxley, one of the authors of Sarbanes-Oxley regulation to lobby on its behalf to be the self regulatory organization to oversee the RIA business. This strategy is definitely representative of the broker-dealer SRO’s interest in ensuring it maintains a key position in regulating RIAs. One might also make the case that Finra is pulling out all the stops to ensure they have control over the fastest growing segment of the advice business, RIAs. As more and more advisors shift their business from commissions to fees, the greater the probability that they transition completely to the advice model, leaving behind broker-dealers and Finra regulation.
So, is this move by Finra self preservation or in the best interest of the industry? This remains to be seen, but if you’ve kept up with this topic at all, you understand (but may not agree with) that it is highly likely that more regulation and review will be coming to the RIA business model. Finra has developed the examination process for broker-dealers and some of this infrastructure and experience could be used to exam RIAs. The SEC has admitted it lacks the resources and with budget battles, is not likely to experience an increase in funding needed to properly oversee all RIAs. The state agencies overseeing RIAs are cash strapped as well, so there’s only a remote chance that they would be the sole oversight organizations. Don’t expect this to be resolved anytime soon. There’s lots of lobbying and debating yet to occur on Capital Hill and within the advisor community. Bottomline, there will be more oversight in the future. If you have a view about regulation, now is the time to offer it to your senators and congress before we end up with some like Sarbanes-Oxley for RIAs.
For a link to a recent Investment News article about this topic click here. More.