Industry trade groups, consumer advocates and advisor partners are gearing up for the House Financial Services Committee's hearing Wednesday on Rep. Spencer Bachus' bill calling for a self-regulatory organization to oversee advisors.
Their collective rallying cry: an SRO isn't needed—particularly if that SRO is the Financial Industry Regulatory Authority. What to do instead? Fund the Securities and Exchange Commission so that it can conduct more frequent advisor exams.
But FINRA will have a chance to defend itself as a FINRA official is slated to testify. Others testifying include David Tittsworth, executive director of the Investment Adviser Association, as well as officials from the Financial Services Institute, the Securities Industry and Financial Markets Association , the North American Securities Administrators Association, and the National Association of Insurance and Financial Advisors.
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Charles Schwab and TD Ameritrade Institutional were both encouraging advisors who custody assets with the firms to "get involved" and write their representatives telling them why an SRO for advisors is a bad idea.
Bernie Clark, executive vice president and head of Schwab Advisor Services, sent a letter May 30 to all of the principals at each of the 7,000 firms that custody at Schwab, telling them that he would be joining the IAA's annual lobbying day Thursday on Capitol Hill.
This year's focus, says Tittsworth: "voicing opposition to the Bachus SRO bill," the Investment Advisor Oversight Act of 2012, H.R. 4624.
Clark asked advisors in his letter to write, e-mail or tweet their representatives about the negative effects of an SRO.
The "resolution" of whether there should be an SRO for advisors "could have a substantial impact on your business," Clark said in the letter. "Most notably, Bachus' proposed legislation—if passed—would subject advisors to oversight by an SRO and regulation very similar to that which broker-dealers face."
Indeed, Skip Schweiss, managing director of advisor advocacy and industry affairs at TD Ameritrade Institutional, says that while there is a "general acknowledgement" that exams of advisors "needs to improve, we think there are ways to do that different than another regulatory layer" via an SRO.
"Advisors should take the time and be heard on this issue" buy contacting their representatives, he said.
Senate Banking Committee chairman Tim Johnson, D-S.D., has expressed his lack of appetite for creating an advisor SRO, "but it's impossible to speculate," Schweiss said. Issues get attached to other pieces of legislation, and "who knows, next thing you know [an SRO for advisors] is law."
With votes to be taken in the House Financial Services Committee likely before July, Tittsworth of IAA adds that "in and of itself that is something that we and the advisory community should be concerned about." While it "may be unlikely that the Senate will consider similar legislation this year, it would be foolish to be complacent when elected officials start casting votes on an issue that is not likely to go away."
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