For Immediate Release: March 9, 2011
Contact: Timothy Collins (678) 756-0195; D. Tyler Roberts (407) 925-3271
SELF REGULATORY ORGANIZATION
FOR INDEPENDENT INVESTMENT ADVISERS (SROIIA)
Business Law Society Will Create SRO for Independent Investment Advisers
Oxford, Miss.: The Business Law Society (BLS) has announced the creation of a self-regulatory organization (SRO) for independent investment advisers. The Self-Regulatory Organization for Independent Investment Advisers (SROIIA, “sir-oy-uh”) will be based in Oxford, Mississippi.
The Securities and Exchange Commission (SEC) has recommended that Congress consider authorizing the creation of an SRO for investment advisers. The Financial Industry Regulatory Authority, Inc. (FINRA), is poised to assume this role, but the BLS believes that investment advisers deserve an alternative. SROIIA will provide a self-regulatory option that responds to the business practices and high standards of independent investment advisers.
In its Section 914 report, the SEC conceded that it lacks the resources for an adequate inspection program for investment advisers. The SEC has requested additional resources, but some have argued, including SEC Commissioner Walter, that increasing the SEC’s budget and/or collecting user fees will not be enough to provide adequate oversight. The BLS believes that delaying the creation of an independent SRO pending the resolution of such budgetary issues would effectively cede the role of investment adviser SRO to FINRA, which stands ready to obtain SEC approval the moment that Congressional authorization of an investment adviser SRO materializes. The time to lay the groundwork for SROIIA is now.
SROIIA will be tailored to the specific needs of independent investment advisors. The BLS will explore operational and policy approaches for SROIIA, including:
- Higher Standard of Conduct: Bona fide fiduciary standard rather than broker-dealer “best interest” or suitability standard.
- Inspections: 100% adviser-inspection rate based on regular, small-touch, tailored interactions rather than one-size-fits-all, bi-annual examinations.
- Compliance: Active compliance assistance program rather than “deficiency” based evaluations.
- Conflicts of Interest: Prohibitions of selected practices (e.g., principal transactions, revenue sharing).
- Client-Centered Testing: Qualifications standards based on bona fide fiduciary standard and financial planning competence not limited to securities-related advice.
The BLS is conducting a nationwide survey of investment advisers to gauge their views on how they believe their industry should be regulated. The BLS will use the results of the survey to develop an SRO structure that is customized to reflect fundamental differences between the business practices of FINRA members and those of independent investment advisers.
“When government departments need help in a specialized area, agencies are created, and the SEC needs help in this area. That’s why the expertise of an investment-advisers-only SRO would be a win-win. It would provide the thorough regulation at the highest possible level that is needed for investor protection while easing burdens on the SEC,” said Timothy Collins, BLS Member and University of Mississippi School of Law student.
“Investment advisers need an independent SRO that will be structured for their profession, not an SRO that will lump them in with a fundamentally different profession such as broker-dealers,” said D. Tyler Roberts, BLS member and University of Mississippi School of Law student.
“This idea has wheels. The creation of an SRO for investments advisers is more likely than not, and many advisers will be looking for a real alternative to FINRA. These students are the first to step up and offer such an alternative,” said Mercer Bullard, project adviser, founder of the Business Law Society and securities law professor at the University of Mississippi School of Law.
Messrs. Collins, Roberts and Bullard will be available for questions during a conference call at 11:00 am EST, dial-in at 1-517-308-9419 or 888-790-3163 (toll-free), participant passcode 21448.
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The Business Law Society is an organization of law students at the University of Mississippi School of Law who develop and implement projects designed to improve the efficiency and effectiveness of business law and compliance.