Congress, lobbyists fight over investment adviser regulation

 

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Investment advisers are at a crossroads. And the direction that the industry takes will have an impact on the growing number of Americans in need of financial advice.

The shift from secure pension plans to 401(k) retirement plans has caused many Americans to face a risky retirement future. And it's not easy for them to find a good and reliable investment adviser for help.

Licensed broker dealers are routinely regulated. But the typical investment adviser is examined only once a decade — and 38% have never faced regulatory scrutiny, the Securities and Exchange Commission says.

To deter bad actors and protect investors, the House Financial Services Committee on Wednesday held its latest hearing on a bipartisan bill designed to give the industry more oversight.

Despite the immediate need for more investor protection, the bill — called the Investment Adviser Oversight Act — has come under criticism in part because it would shift the oversight from the SEC to the Financial Industry Regulatory Authority (FINRA), which is a self-regulatory organization.

The Project on Government Oversight (POGO), a non-partisan government watchdog group, fired off a scathing letter to the committee charging that FINRA's regulatory effectiveness is undermined by its inherent conflicts of interest, lack of transparency and accountability.

FINRA's top 10 executives receive nearly $13 million in pay and benefits, which POGO said is excessive for a non-profit regulatory organization. And POGO pointed out that a number of former FINRA officials and firms were later charged with fraud involving investor losses. Several members of Bernard Madoff's family held membership roles at FINRA.

Critics also say the bill would result in additional cost. It is not supposed to affect taxpayers. But added fees could have a serious impact on independent small firms that already are regulated by state examinations. A survey by the Massachusetts Securities Division says that 41% of state-registered small investment advisers would be forced out of business.

"To make it difficult for the few people who cater to middle-income clients, whose investments are so important to their future well-being, is a travesty," says Susan John, national chair of the National Association of Personal Financial Advisors.

But the bill has its industry supporters. Among them, Chris Helck, chairman-elect of the Securities Industry and Financial Markets Association, said in written testimony that the bill "fills a gaping void in current investment adviser oversight," and the shift to FINRA would "increase the amount and frequency of investment adviser examinations and oversight."

To check out an investment adviser, go to:

• Finra.org and sec.gov to see if regulatory action has been taken against them.

•Your state securities department ( nasaa.org) to see if they are registered and have any history of complaints.

•Your state's division of insurance if the adviser also sells insurance products, including annuities.

Source: USA TODAY research