March 2, 2011 / 10:10 PM / 7 years ago

FINRA chief says RIAs can choose regulator

NEW YORK (Reuters) - FINRA Chief Executive Richard Ketchum extended an olive branch to investment advisers, a fiercely independent community that strongly opposes answering to the powerful brokerage watchdog he runs.

At the same time, he expressed confidence that the Financial Industry Regulatory Authority would ultimately emerge as the cop on the beat for most investment advisers.

“We would do a better job of broker-dealer oversight if were also overseeing advisers, certainly the joint activity of firms that are both broker-dealers and investment advisers,” Ketchum told the Reuters Future Face of Finance Summit on Wednesday.

Stock brokers and investment advisers are often considered one in the same, but these intermediaries are subject to different laws and for more than 70 years have been supervised by different regulators.

That distinction, blurred by years of Wall Street calling its brokers “advisers,” was addressed in last year’s Dodd-Frank regulatory reforms. Among many provisions, the new law calls for more frequent supervision of some 12,000 investment advisers.

Ketchum’s FINRA has told the U.S. Securities and Exchange Commission that it is able and willing to be the supervisor for investment advisers. The SEC is currently considering whether to keep the job itself, contingent on securing a bigger budget, designate FINRA or charter a new self-regulatory organization.

Independent advisers have lobbied the SEC hard not to choose FINRA, something Ketchum took in stride.

“Statutory provisions usually leave it up to the members what SROs they want to form, whether they use something already there or something else,” said Ketchum, who contends it is unlikely the SEC would force an SRO on advisers.

In fact, there is more likely to be multiple supervisors designated by the SEC.

“When you’re starting from square one, it’s perfectly possible for me to imagine multiple SROs that deal with different firms in different situations,” he said.

That said, Ketchum observed that the majority of investment advisers work with firms that are also broker dealers and thus already supervised by FINRA.

“The independent advisers that are not also broker dealers have a different view than the folks who have 88 percent of the human beings,” he said.

That would suggest most advisers would wind up answering to FINRA, along with their broker colleagues.

Ketchum acknowledged the hue and cry of independent advisers, and said FINRA, if designated, needs to increase its understanding of independent investment advisers, their different businesses and then address their concerns.

“I think that can be done, and we would do that.”

Ketchum dismissed some objections by independent adviser groups as “a smoke screen,” namely complaints that FINRA’s expertise in rule-based broker regulation makes it ill-equipped to take over the SEC’s principles-based approach.

“What FINRA has is an infrastructure and expertise. What it doesn’t have is an intention to implement the same rule-based requirements,” he said. “If we were (adviser) examiners, as one of several SROS, we would enforce the SEC’s existing rules.”

FINRA will leave rule-making with the SEC, he added.

Brokerages, which will likely answer to the tougher fiduciary standard applied to advisers, have responded to that challenge by calling for greater consistency in exams.

The SEC, a recent commission report found, on average examines advisers once every 11 years. FINRA examines about half of its 4,600 broker members each year.

Reporting by Joseph A. Giannone; Editing by Tim Dobbyn

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below