Due Diligence

Bacchus To Lead Financial Services Committee, Could Mean FINRA SRO

The big Republican wins in Tuesday’s election could influence who plays top cop for investment advisers with $100 million in assets or more. With Republicans taking control of the House of Representatives, Spencer Bacchus (Ala., R) will take over chairmanship of the financial services committee from Barney Frank. And that may determine whether the SEC will get more funding to police investment advisers or designate an SRO to help it oversee them instead—and whom it might select as an SRO.

“For investment advisors the SEC is still the main place to look for the action [on regulatory reform], except on one issue that is our biggest issue and that’s SEC resources and/or the need for an SRO,” says David Tittsworth, executive director of the Investment Adviser Association. “That’s an issue that could still surface and may even be more prominent because with a more conservative Congress it’s unlikely the SEC will get these increases in funding that were authorized by the Dodd-Frank act.”

When the Dodd-Frank legislation was being debated in Congress, Bacchus offered an amendment to allow FINRA, the SRO for broker/dealers, to act as the SRO for all investment advisers who have an affiliation with broker/dealers (only 500 RIA firms are dually registered, but about 3,000 of the 11,000 have an affiliation with a broker/dealer according to some estimates). It’s not a popular move with investment advisers, who fear FINRA has a broker/dealer bias and will not police them fairly.

Beyond that, however, the election results mostly mean that it is unlikely any major legislation will get passed in the near future. “They don’t bode well for massive new legislation,” says Tittsworth. “Can you spell gridlock?” People who think that because the Republicans have control of the House that Dodd-Frank will be repealed are kidding themselves, Tittsworth adds.

On or about Jan. 17, the SEC is supposed to issue a report to Congress to the Senate banking committee and the house financial services committee concerning investment adviser examinations. That report may recommend legislation that would give the SEC authority to designate one or more SROs for advisors. The Investment Adviser Association, the ICI, FINRA and the Managed Funds Association have all filed comment letters to the SEC on the subject.

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