FINRA's Estimate Of Cost Of Establishing And Maintaining An SRO For RIAs Challenged By Coalition Representing RIAs

Thursday, May 10, 2012 19:59
edit
FINRA's Estimate Of Cost Of Establishing And Maintaining An SRO For RIAs Challenged By Coalition Representing RIAs

Tags: broker-dealers | CFP Board | compliance | Congress | Dodd-Frank | NAPFA | registered investment advisors | RIA compliance | RIAs | TD Ameritrade

The Financial Industry Regulatory Authority's (FINRA) estimate of the cost to setup, operate and oversee a self-regulatory organization (SRO) for investment advisers (IA) underestimates overhead costs and overestimates IA examiner productivity, according to a new review of FINRA's estimate.

This Website Is For Financial Professionals Only


 
The review was conducted by The Boston Consulting Group (BCG) on behalf of the Certified Financial Planner Board of Standards, Inc., Financial Planning Association, Investment Adviser Association, National Association of Personal Financial Advisors and TD Ameritrade Institutional, according to a press release from the coalition.
 
FINRA released its cost estimate on April 25, the same day Rep. Spencer Bachus (R-AL) and Rep. Carolyn McCarthy (D-NY) introduced legislation authorizing the creation of an IA SRO. BCG's review finds:
  • FINRA's estimate omits the cost of SEC oversight ($90-$100 million) and the cost of enforcement ($60-$70 million), both of which are required by the legislation
  • FINRA's estimate of $12-$15 million in setup costs does not include staff costs incurred during the 12-month setup period, specifically the cost of examiners and support staff. FINRA only includes these expenses as part of its ongoing investment once the SRO is up and running. This omission accounts for $180-$230 million of the difference between the BCG and FINRA estimates
  • FINRA's estimate of the ongoing annual cost of examining 14,500 IA firms once every four years, assumes that FINRA's IA examiners would be able to nearly double the productivity rate of SEC IA examiners, by performing 5 or more examinations per examiner per year.  This compares to SEC IA examiner productivity of 3.0, and FINRA broker-dealer examiner productivity of 2.8. This productivity assumption accounts for $150-$170 million of the difference between the BCG and FINRA estimates
  • FINRA's estimate does not include overhead costs in its estimate of $150-$155 million of ongoing annual investment. Overhead costs account for $135-$140 million of the difference between the BCG and FINRA estimates.
"We believe that the review of FINRA's cost estimates confirms the independent economic analysis conducted by BCG last year.  We think it would be a mistake to add an unnecessary layer of regulation and cost on small businesses that deliver sound advice to investors," the group sponsoring the BCG review said. "We continue to believe that oversight of investment advisers should stay with the Securities and Exchange Commission, the most cost-effective alternative."

 

Comments (1)

...
mitchellkeil
We all need to write our representatives and let them know how we feel about FINRA becoming our SRO instead of the SEC. The fox guarding the henhouse is not what we want in my opinion. Veres and the FPA have both sent out emails with sample language for letters we can send to our representatives and senators. Please do it before it is too late to do anything about this.
mitchellkeil , May 11, 2012

Write comment

You must be logged in to post a comment. Please register if you do not have an account yet.

busy