November 4, 2010
Thank you for the opportunity to comment on the topic of supervision and examinations.
I have spent the last 25 years serving clients, the first half of those years as a broker and now exclusively as a Registered Investment Adviser. The fiduciary standard and reduced conflicts of interest were the primary reason I made the change.
The truth about our work is that the majority of the members of the public rely on their advisors professional guidance because they either do not have the expertise or lack the time to know whether an investment is suitable for them. This is a textbook example of where a fiduciary relationship exists, regardless of whether everyone admits it.
Not only does working as a registered investment adviser have fewer conflicts of interest, but the nature of the relationship and business model enhances accountability to clients. Congress understood this very well and showed great wisdom when they wrote the Investment Advisers Act of 1940.
That does not mean that oversight is not important which is why it is spelled out in the 1940 Act. Unfortunately I do feel that the SEC has been under resourced for many years, and given the current budget climate it seems more important than ever to emphatically state:
We are willing to pay for supervision by the SEC so that it will not cost taxpayers.
This is how SROs are funded and we feel that it is entirely appropriate for the SEC to do so as well.
As has been pointed out by FINRA, if the SEC is not allowed to do its job due to inadequate funding, an SRO would have to be created yet it would still require SEC supervision of the SRO actions. This would clearly be less efficient, less effective and cost more money because of the added layer.
In addition, given that FINRAs regulatory experience is entirely based upon the suitability standard, they lack the frame of reference that the SEC possesses for supervising a fiduciary standard. Much of approved suitability disclosures are actually denunciations of a fiduciary relationship.
So not only is the SEC the stated regulatory body under the 1940 Act, the Commission is also the most appropriate and experienced regulator for investment adviser examinations, they just need use of our registration fees to be able to conduct them.