Due Diligence
New Investment Adviser SRO Project. Can It Work?

New Investment Adviser SRO Project. Can It Work?

law3A couple of law students from Oxford, Miss., backed by vocal investor advocate Mercer Bullard, have ambitious plans to create an SRO (self-regulatory organization) for investment advisers. Their group would rival FINRA, the SRO for broker/dealers and currently the leading contender for the job.

Tyler Roberts and Timothy Collins, students at the University of Mississippi Law School, announced their intentions during a conference call Wednesday. They are sponsored by the Business Law Society, which helps students design projects with real-world application, and have dubbed their group SROIIA (“sir-oy-uh”).

SROIIA would be funded by user fees and would examine 100 percent of RIA members every year with a lot of "small-touch, tailored interactions," the students said. It would also focus on pure RIAs without any broker/dealer affiliation; these firms account for about 76 percent of all RIA firms, according to a 2010 report from the Investment Adviser Association and NRS called Evolution/Revolution, which examined forms ADV filed with the SEC. Last year, the SEC only examined 9 percent of all 11,000 RIAs under its jurisdiction.

But Roberts and Collins were short on details, such as what it would cost to run such a group, how much it would charge members and how much staff it would need to do the job. "Our resources are the biggest hurdle right now," said Roberts. That should sound familiar. There is also the problem of expertise.

The two students plan to launch a survey of at least 500 investment advisers nationwide in a couple of weeks that will help them answer some of these questions, however, and they are working to bring on strategic partners to help them with examination and enforcement expertise, though they couldn’t name any partners yet.

On the conference call, Bullard harangued other adviser organizations for not launching an SRO effort themselves. “I’m wondering what the CFP Board, the IAA and the FPA are thinking,” he said. “They talk a lot about not wanting to have FINRA be the SRO but they’re behind the curve.”

Compliance consulting group Fi360 confirmed that it has had very preliminary conversations with Mercer Bullard about partnering with the group and is considering it. The Financial Planning Association, the Investment Advisors Association and the Committee for the Fiduciary Standard said they have not been approached.

Fi360 is cautiously optimistic about the group’s chances for success. “They stressed the need to have strategic partners,” said Fi360 president and CEO Blaine Aikin. “And I think that could make this a feasible endeavor,” he said.

Although Bullard, who is the president and founder of pro-investor group Fund Democracy, has no official role in SROIIA, Aikin said that Bullard’s participation and backing should provide a serious boost to the effort. But he will have to work quickly, he added. For the full story, go here.

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