Republican representative Spencer Bachus—one of the co-authors of the recently famed bill paving the way for FINRA to become the
self-regulating authority outside the SEC—is now placing self-regulatory responsibility on the shoulders of industry professionals.
This Website Is For Financial Professionals Only
But the responsibility really is flowing over to investors. More than ever, investors have to do their own due diligence. Heretofore, investors have had confidence that the government was sufficiently regulating industry professionals with whom they entrust their investment assets.
But the 2008 crisis coupled with the Madoff, Stanford, Hutcheson, Spangler and other scandals have changed that. The average investment advisor is not registered with the SEC and so, does not trade stocks.
So they come under examination once every ten years. The legislation Bachus and Rep. Carolyn McCarthy introduced would mandate scrutiny on a more frequent basis. Bachus also points out that, according to SEC records, as much as 40% of investment advisors have never been examined or audited.
Bachus claims this contributes to the continuation of Ponzi schemes and other fraudulent activities until the damage to investors has already been done.
Bachus is touting his reforms based on the fact that, even if it received increased funding immediately, the SEC has proclaimed it would only have the capacity to examine one in ten investment advisors on an annual basis.
This points to the fact that, regardless of regulatory capability by state and government authorities, the mandate to do what’s right and deliver a fiduciary level of service
is ultimately ours.
Trust is built and maintained on an individual basis, with individual action taken on a daily basis. Of course, this is not news to many investment advisors—regardless of how often they are examined.