Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, April 30, 2012

Will There Be Investment Adviser Oversight Legislation in 2012?

On April 25, Representative Bachus introduced legislation to provide for the registration and oversight of national investment adviser associations, the Investment Adviser Oversight Act of 2012. (Download Investment Adviser Oversight Act of 2012) .  Initial reactions to the legislation are predicatably divided. 

Here is the statement from FINRA:

The bipartisan bill, Investment Adviser Oversight Act of 2012, introduced today is an important and thoughtful effort to address a serious gap in investor protection. The bill recognizes the need for regular exams of investment advisers, while rightly focusing on retail accounts.

 As FINRA has said, the current level of IA exams is unacceptable, and SROs can help fill this untenable gap in the protection of investment advisory clients.

Here is a statement from NASAA:

The regulation of investment advisers long has been the shared responsibility of state and federal securities regulators. Chairman Bachus believes a self-regulatory organization for investment advisers is necessary because the federal government has not provided proper oversight over larger advisers, but his bill also would require state-registered advisers to become members of his new SRO. The creation of an SRO for state-regulated investment advisers is a misguided solution to a problem that does not exist.

There has never been any evidence to suggest that states have failed in their mission of regulating smaller investment advisers. Nonetheless, this bill dictates how each state should regulate smaller advisers and requires state-regulated advisers to join a national SRO. The Bachus bill is an astonishing attack on our system of federalism with no demonstrated justification.

While there have been marginal improvements from the draft Chairman Bachus released last September in the areas of conflicts of interest and information sharing, the nationalization of small and mid-sized investment adviser regulation would be a mistake that neither benefits investors nor promotes small business interests. Shifting their regulation to a central office would subject these small businesses to redundant regulation and add unnecessary costs to support this new bureaucracy. State securities regulators are best positioned to be the primary regulatory for small and mid-sized investment advisers.

I will be reporting more on this proposed legislation as it progresses.  Stay tuned!

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