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After seeing that 63% of its 50,000 members are registered reps for broker dealers, the National Association of Insurance and Financial Advisors (NAIFA) is supporting the Financial Industry Regulatory Authority (FINRA) in its bid to become the self-regulating authority (SRO) for investment advisors.
 Securities transactions of these 63%, through their broker dealers, are regulated by FINRA. The remaining 27% of NAIFA's members are investment advisors who are regulated by the Securities & Exchange Commission.
The integrity of this regulation has been a touchy issue for some time. In a report mandated by the Dodd-Frank financial "reform" law, the SEC admitted that last year it examined only 9% of the 11,800 registered investment advisors (RIAs) and that one-third of these financial advisors have never been examined.
"There is a gap in consumer protection; nobody really disputes that," said Jill Hoffman, NAIFA's assistant vice president for federal government relations. "FINRA is the best choice, especially for our members," she said.
But most investment advisors, led by the Financial Planning Association (FPA), adamantly oppose FINRA's becoming their SRO, questioning its ability to enforce a principles-based fiduciary standard when all its experience has been with the rules-based suitability standard.
FINRA, which has made no secret of its desire to take over the investment advisors, says it would "develop a separate regulatory regime for advisors that is sensitive to industry characteristics" and is shaped with advisor input.
The SEC presented three options early this year: (1) Keep investment advisors with the SEC and allow the regulator to charge user fees, (2) Establish a brand new SRO or (3) give the charge to FINRA.
Most advisors appear to favor user fees because they want the SEC to maintain its oversight and want no part of FINRA.
The decision is up to Congress, which is showing no inclination to provide the funds the SEC says it needs to perform its core duties, let alone implement the new responsibilities imposed by Dodd-Frank.
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