January 13, 2011 / 9:15 PM / 7 years ago

Financial planner group urges more U.S. regulation

NEW YORK (Reuters) - Financial planners, a fast growing but loosely regulated group, want the U.S. government to keep a closer watch on those who present themselves as trusted advisers to small investors.

Investment advisers, meanwhile, called on Congress to impose a tougher standard of care on brokers, their rivals in the business of managing personal finances.

Over the next eight days, the U.S. Government Accounting Office and the Securities and Exchange Commission are scheduled to release three studies mandated by Congress as part of last year’s Dodd-Frank regulatory reforms.

The Certified Financial Planner Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors -- representing 75,000 certified financial planners and investment advisers -- said on Thursday these reforms ultimately must result in stronger consumer protection.

“It’s not often you see someone advocating for more regulation, but we are because we believe this is a consumer protection issue,” said Marilyn Mohman-Gillis of the CFP Board. “Consumers expect that those who hold themselves out as financial planners work in their best interests.”

She said there are no ethical or competency standards for an industry whose ranks are growing, though some aspects of the planning business are regulated by the SEC and other bodies.

The SEC will release its study on improving oversight of investment advisers on January 17, and a second report on the extension of the fiduciary standard on January 21. The nonpartisan GAO, meanwhile, is to release a study on the gaps in financial planner regulation on January 17.

Last summer the three financial adviser groups conducted a survey that found the vast majority of Americans want un-conflicted advisers and greater transparency about the fees and commissions they pay.


A far trickier issue, though, is improving the regulation of registered investment advisers (RIAs).

The 2008 collapse of investment adviser Bernard Madoff’s Ponzi scheme -- which carried on unchallenged by regulators for decades -- revealed that RIAs are examined infrequently by the SEC or state agencies, if at all.

Dodd-Frank ordered the SEC to study how oversight could be improved, and whether the adviser industry needs its own private-sector regulator.

Investment advisers want to remain under the preview of the SEC and not the Financial Industry Regulatory Authority, the broker-dealer industry’s watchdog.

Brokers and investment advisers, though often considered interchangeable, were born out of separate laws, engage in different activities and are subject to different standards.

Dan Barry, managing director of government relations and public policy of the Financial Planning Association, said FINRA does not have the expertise needed to oversee advisers. He also warned it would take time for a new regulatory body, whether FINRA or some other watchdog, to get up and running.

“It will take time to put boots on the ground. That is not a good use of limited resources,” Barry said. “Resources would be best put into existing infrastructures. The SEC has the infrastructure, they have the experience and the expertise.”

FINRA and the brokerage industry’s lobby, SIFMA, have argued the SEC is already overstretched and unlikely to get more money to increase the frequency of its exams. Investment advisers also lobbied Congress to let the SEC fund itself with fees and fines, but that effort fell short.

Barry said FINRA, created by Wall Street brokerage firms, would need to create a new entity or else revamp its current governance if it were to begin examining investment advisers.

The coalition of advisers and brokers noted that the SEC Chairman Mary Schapiro was formerly chief executive of FINRA. She has recused herself from the issue of adviser regulation, but Commissioner Elisse Walter, a former senior executive vice president at FINRA, has not.

Reporting by Joseph A. Giannone; Editing by Richard Chang

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