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BlogsTaking it to the Bank
The SRO Debate
By Pamela J. Black
January 21, 2011
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Will the SRO debate have much of an impact on bank brokerage?
The SEC, which was supposed to come out with some ruling about how to harmonize the fiduciary standard for all advisors and how to regulate it, seems to have dodged making a decision. Not only did it come out days late with its proposal but it made no decision about anything.
It merely posited three options.
1) The SEC could oversee all advisors, but since it doesn’t have the money to do so, it would need to charge fees as FINRA does now to the organizations it oversees to pay for examinations and enforcements.
2) The SEC could designate one or more self-regulated organizations to oversee all advisors.
3) The SEC could grant oversight of all advisors to FINRA, which currently oversees registered reps and brokers and charges fees to those it oversees.
It’s unlikely that any of these of options will affect bank brokerage. The SEC has basically stated it doesn’t want this responsibility and is leaning toward the other two options.
An SRO would probably be a remake a FINRA under a new name. It’s unlikely the rules of policing the industry would vastly change, if they changed at all.
Putting FINRA in charge of everyone would probably be the path of least resistance, because it currently does charge fees, oversees all dually registered brokers and does a fairly good job of doing so, conducting significantly more inspections than the SEC is able to do.
What remains is the infamous fiduciary standard, which is supposed to be harmonized by whatever organization prevails. Bank brokerage programs are preparing for this by ensuring as much as possible that advisors are already putting the interests of clients first. Partly this is driving an increase in moving from commission-based to fee-based business.
Time will tell, but at this point, it doesn’t look like bank brokerage has much to fear from this change.
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