Study: FINRA Regulation of Advisors would Cost Double SEC

December 16th, 2011
in econ_news

Econintersect: A study released yesterday (December 15) by several investment-adviser interest groups shows that advisory firms would pay more than twice as much if they were overseen by a self-regulatory organization as they are under the Securities and Exchange Commission.  According to Financial Advisor Magazine:

trustRegistered investment advisors (RIAs) may be more inclined to trust the devil they know vs. the one they don't when it comes to what agency should oversee their industry, according to a survey of RIAs to determine which of three oversight agency scenarios they would prefer.

According to a survey conducted by the Boston Consulting Group (BCG), more than 80 percent of RIAs queried said they would prefer to pay user fees to fund what is described as “an enhanced Securities and Exchange Commission oversight, than the two other options now on the table that several SEC supporters contend would dramatically increase RIAs’ annual fees.

Follow up:

From Investment News:

The report by the Boston Consulting Group addresses the question of whether the SEC should be empowered to raise funds for more adviser examinations by fees. It would cost between $6 million and $8 million to prepare for additional exams, and the annual cost would be about $240 million to $270 million annually. The average annual fee per firm for examinations would be $27,500.

If advisers were regulated by the Financial Industry Regulatory Authority Inc. — something Finra has been pushing for — the annual total membership cost would jump to between $540 million and $610 million. Of that, between $200 million and $255 million would be used for start-up costs to create a Finra mechanism for conducting adviser exams. The cost per firm would be $51,700, according to the Boston Consulting Goup.

It would cost $255 million to $310 million to establish a brand-new SRO. The annual cost would be between $610 million and $670 million. Individual advisory firms would pay more than $57,400 in membership fees.

An article from Investment News a few days earlier reported that House bill to establish a FINRA (Financial Industry Regulatory Authority) SRO responsibility for regulating investment advisors has been delayed for at least several months.  The delay is taken as an indication that registered investment advisors are making headway in their efforts to remain under SEC regulation rather go to an SRO arrangement.  The opposition to FINRA having the investment advisor regulation responsibility rests on the contention that the organization does not have a comprehensive grasp of fiduciary responsibility which is required for investment advisors, but is focused on protecting the interests of broker-dealers who are the members of the organization.  See GEI News.

Sources: Financial Advisor Magazine, Investment News (Cost Study), Investment News (Advisors oppose FINRA regulation) and GEI News

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