FPA's Auslander On Choosing Between FINRA and SEC

The Financial Planning Association is an adamant opponent of FINRA regulation of the registered investment advisor industry, so it’s mildly ironic to hear FPA President Paul Auslander point out that his own practice would benefit from such an arrangement.

Auslander’s American Financial Advisors in Orlando, Fla. is dually registered. In a recent interview at our offices in Manhattan to discuss Congressional hearings this month on the subject, Auslander noted it would be easier for his business if he had to deal with just FINRA audits instead of audits from both FINRA and the SEC.

He still doesn’t find a compelling case for RIA regulation by FINRA.

“FINRA has absolutely no experience regulating anything of the sort,” Auslander (right) said. “They certainly could get there, but that’s our concern. How long would it take to ramp them up to be capable of doing that, and at what cost?” Boston Consulting Group has reported that a FINRA auditing regimen would be more expensive than one by the SEC, which has overseen investment advisors for 70 years, he said.

The SEC does not enjoy deep respect from Congress these days, he said.

“There’s this incredible disdain on the part of both Democrats and Republicans for the SEC.  I’m not even sure they’re looking at it objectively. FINRA appears to be an answer because it’s a private enterprise, as opposed to a government agency, so (Congress) can say they’re not burdening government.”

Doesn’t that disdain stem from the SEC’s own failures of regulation, such as its inability to stop Bernard Madoff from pulling off a historic ponzi scheme?

“You can argue that Madoff should have been caught by FINRA, too,” Auslander said. “He was registered as a broker/dealer.”

Auslander agrees there should be increased examination of investment advisors. The average of one audit every 11 years is “absurd,” he said. One of the strongest arguments for FINRA managing RIA exams is that they’re already doing more frequent exams at the b/d level, he says. The SEC could do that if it were funded adequately, he added; he supports users fees toward that end.

“This is going to be paid for one way or the other. FINRA is going to charge user fees, they’re just going to say it differently,” he said. “Somebody’s going to pay, and it’s going to be the profession, and that’s OK . That’s probably the way it should be. … I don’t like a lot of costs. But I also recognize that you sometimes have to belly up to the bar.”

Is this an issue the public cares about?

“I think the public just wants to have confidence in the system. And whatever gets them there, they would agree with it,” Auslander said. “Do I think they understand the differences that you and I discuss? No, nor do I think they care.

“But I think they do want a fiduciary standard, which is a different issue. I think they think there is one. You talk to clients, you see surveys, they’re somewhat surprised that 'somebody that’s dealing with my money doesn’t have to put my interests ahead.' ”



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