State securities regulators oppose the creation of a new self-regulatory organization for investment advisors in the United States, an initiative that the securities industry trade association supports.
The North American Securities Administrators Association (NASAA) told the U.S. House Financial Services Committee Wednesday that legislation to create a self-regulatory organization (SRO) for investment advisors would add redundant regulation and costs that could force many small firms to close.
Currently, the state regulators oversee investment advisors with assets under management of less than $100 million, with larger firms regulated by the US Securities and Exchange Commission (SEC). Legislation before congress would require some federally registered investment advisors and most state-registered firms to become members of an SRO, comply with its rules, pay fees, and be subject to its inspections, which NASAA argues is unnecessary.
Texas Securities Commissioner, John Morgan, said state securities regulators are “extremely concerned” about the impact the legislation would have on state-registered investment advisors and the clients they serve. “In short, the most urgent problem with this legislation is that it has the very real potential to be a job killer,” he said during a hearing on the bill.
He argued that investment advisor regulation is a government function that should not be delegated to an SRO, and that it would impose redundant regulation and unjustified costs on small and mid-size investment advisors.
Securities industry lobbyists, the Securities Industry and Financial Markets Association (SIFMA), came out in favour of the bill however. SIFMA chair-elect and CEO of the global private client group of Raymond James Financial, Inc., Chet Helck, said that SIFMA supports a new SRO on the basis that broker-dealers provide some of the same services as investment advisors, and that when brokers and investment advisors provide the same service, they should be held to the same standard with uniform examination and oversight for compliance with that standard.
“Over the years, the retail advisory services of investment advisors and broker-dealers have converged and in some cases, become indistinguishable, particularly for individual clients,” said Helck in his testimony. “Where the services have become essentially identical, we believe that individual clients would benefit from, and be better protected by, consistent standards, consistent examination, and consistent oversight for investment advisors and broker-dealers.”