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The students are creating the “
The project is intended to address concerns that the
Most of the adviser community is stridently opposed to giving Finra, the SRO for broker-dealers, a role in adviser regulation, because it specializes in enforcing the rules-based suitability standard. Advisers operate under the more stringent principles-based fiduciary standard, which requires that any action that they take be in a client’s best interests.
“We can’t see the Statute of Liberty from here, but we can give Finra a run for its money,” Mercer Bullard, a securities law professor at the
Finra has suggested that it is best situated to handle adviser examinations. Indeed, it can argue to
Extending Finra’s reach to investment advisers would “close the regulatory gap” between advisers and brokers, said
“Finra has experience in performing regulatory examinations of financial service providers and has experience operating an SRO whose structure is designed to ensure its governing body, committees and staff act in the public’s best interest,” he said in a statement.
Finra itself appeared pleased by the law students’ plan.
“We welcome the recognition by professor Bullard that SROs can and should play a critical role in the oversight of investment advisers,” Finra spokeswoman
The students acknowledge that they face substantial obstacles in setting up an SRO, including raising what likely will have to be millions of dollars.
“Our resources are our biggest hurdle,” said
Nonetheless, the students are committed to establishing an SRO that will enforce the fiduciary standard, inspect 100% of its members each year and provide what they call “small-touch, tailored interactions” focused on compliance assistance rather than “deficiency-based evaluations.”
The students said that they are reaching out to advisers and others with experience in the investment advice sector to ensure that their organization has the appropriate expertise.
“We’ll have people involved on the board and elsewhere who know the industry and are advisers,” Mr. Roberts said.
The students soon will start a nationwide survey of advisers to find out what they want to see in an SRO.
It is necessary to start the process of establishing an SRO in order to provide an example of the governance, examination and financial structure that the task requires, Mr. Bullard said.
“What [the students are] doing is creating social capital,” he said.
Mr. Bullard chided groups such as the Certified Financial Planner Board of
“If the CFP, FPA or IAA gets their act together, they might want to join us,” he said.
“No one’s filling this space. If they’re serious about having an alternative, they’re getting way behind the curve.”
Leaders of the organizations called out by him said that they admire what the students are attempting to do.
“Putting together an SRO is a pretty daunting task,” said
“We’re still trying to gather some cost data, trying to figure out how you would finance this,” he said. “There are other people doing the same thing, including Finra.”
Mr. Tittsworth is more hopeful than Mr. Bullard that an SRO can be avoided.
“The debate about investment adviser examinations is going to continue for a while,” Mr. Tittsworth said. “We’re not Pollyannaish about the likelihood that the
“Mercer has a novel and creative idea of making [an SRO] a law school project,” she said. “It will be interesting to see what they come up with.”
“FPA doesn’t think that an SRO for advisers is needed,” he wrote in an e-mail. “The
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