Should a register investment advisor be regulated by the SEC or FINRA? Learn more about proposed changes to the way independent advisors are regulated.
Should a registered investment advisor be subject to oversight by the Financial Industry Regulatory Authority, a self-governing industry group that currently regulates broker-dealers? Not according to the National Association of Personal Financial Advisors or NAPFA.
NAPFA, which represents fee-only independent advisors, is an outspoken opponent of the Investment Oversight Act of 2012, introduced by Rep. Spencer Bachus, (R-Ala.) chair of the House Financial Services Committee. NAPFA is the leading professional association for fee-only financial planners, who tend to be small business owners serving middle-class investors.
A registered investment advisor may charge fees, commissions or a combination of both and is not necessarily represented by NAPFA. An advisor is required to register with the U.S. Securities and Exchange Commission when he or she manages more than $100 million in assets. Investment advisors managing less than that must register with their respective state regulatory agencies. (A broker-dealer differs from a registered investment advisor in significant ways.)
“We all agree that increased examination of independent financial advisors is crucial to maintaining the public trust,” Susan John, NAPFA chair, said in a statement released earlier this month. “Where we differ is how to get there in the smartest and most efficient way.”
The oversight act, HR 4624, would create a new program at FINRA to regulate the registered investment advisor and other types of financial professionals. According to NAPFA, the plan would be more expensive and less efficient than increasing funding for the SEC, which currently has oversight. (A growing number of investors are using a registered investment advisor, though broker-dealers are preferred by high net worth investors.)
The act would require a registered investment advisor to pay a mandatory membership fee to FINRA, which would be significantly higher than the fees currently paid to the SEC, an agency with direct government oversight and closely watched by Congress, according to NAPFA, which describes FINRA as a “Wall Street friendly” institution attending to the “interests of the brokerage-dealers and wire houses.”
“NAPFA is deeply concerned that while prudent oversight is demanded, many advisors would likely curtail services to middle class Americans if they are required to pay considerably higher fees to FINRA and in compliance costs each year,” said the association in its statement. NAPFA notes that at least part of the fees would help pay for the “exorbitant” compensation paid to FINRA’s executive staff, which receive nearly 10-times more than salaries paid to SEC executives.
Click here to learn more about the criteria used by Millionaires to select a registered investment advisor or other financial professional.