The independent advisory industry needs to find the collective will to create its own self-regulatory organization in order to avoid the possibility of coming under the heel of FINRA, according to Andrew Wels, chief regulatory counsel at legal consulting firm MarketCounsel.
Speaking on a panel with other MarketCounsel principals at the firm’s annual client summit in Miami on Tuesday, Wels said the oft-cited failure of the SEC to examine more than 10 percent of the investment advisory firms under its mandate in any given year is a canard.
“The problem with advisor examination is not the frequency, but the content. Examiners at the SEC are not at all well versed in the (RIA) business model. They’re better suited for JP Morgan or PIMCO. It’s a waste of taxpayers money.”
But the optics of infrequent examinations is troubling, argued managing partner David Mzarik. For investors, it looks like a failure of oversight. “That’s unsustainable,” he said, particularly as the RIA channel grows and becomes more visible to investors.
Wels and Mzarik spoke on the opening panel Tuesday of the firm’s client summit, which drew a crowd of some 500 advisors and vendors in the RIA space to Miami.
Mzarik said he would favor telephone screens for RIA firms, which could dramatically increase the number of firms contacted, and help guide the SEC towards those firms that might merit a deeper dive.
Wels said a push toward the “harmonization" of the rules governing RIAs and brokers wouldn’t help matters. “Harmonization of regulation means harmonization of regulators. That’s an end-run to put FINRA back in charge.”
“How can more prescriptive models from FINRA be better for anyone but FINRA?” he asked.
“We are waiting for someone to take the lead and accomplish the goal of creating an entity and a plan with credible means to regulate ourselves,” Wels said. “Make it legislation. The opportunity is ripe for that. People are looking for solutions. A self-funded regulatory organization that we control that has credibility with the public becomes a real possibility.”