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Attention: All Investment Advisers and Investors…

Posted by Larry Doyle on May 3, 2012 7:29 AM |

The financial regulatory landscape is poised to change and, as far as I am concerned, not necessarily for the better.

Will you be merely a spectator or do you care to participate in the legislative process that WILL impact most of you? Are you an investment adviser? Are you an investor with funds managed by an investment adviser?

If you fall into either of those camps, I exhort you to get involved. I encourage you to become part of the process and the solution and not merely a bystander. How so? Let’s navigate. 

H.R. 4624, The Investment Adviser Oversight Act of 2012, will mandate SRO (self-regulatory organization) membership for most SEC-registered investment advisers. What does this mean? The folks from FINRA are getting ready to show up at your front door. Yes, that very same FINRA which your unbiased and “call ’em like I see ’em”  writer here at Sense on Cents has been railing on for three plus years.

My concerns about FINRA run far and wide. Let me simplify them. Would you care to be subject to arbitration hearings in a FINRA kangaroo court? You think I am kidding? I’m not. Recall a few months back that I highlighted, How Does FINRA Lose 8 Hours Worth of Testimony? Wall Street’s “Kangaroo Court”, and referenced a specific case,

For those in our nation who have a semblance of decency and a desire to see due process reflected in legal hearings and financial arbitration, I believe you will be similarly dismayed.

The case to which I will refer strikes deep into the core of Wall Street arbitration.

Mark Mensack joined Morgan Stanley (MS) in 2008, but now he’s in personal bankruptcy and just moments away from losing his home in Cherry Hill, N.J.

He’s turning 50. He’s got a wife and three kids. And this is where he’s landed after losing an arbitration with his former employer before his industry’s self-regulating body, the Financial Industry Regulatory Authority.

Mensack told me that when his attorney requested recordings for an appeal, Finra wouldn’t produce them. He said he eventually learned eight of about 18 hours of testimony from his case were missing. He sent me audio files that were inexplicably cut off at the end. He also showed me a Jan. 13 letter that Finra regional director Katherine Bayer wrote to his attorney. It said:

“Finra is required to make a…recording of every hearing. …Unfortunately, portions of testimony returned to us by the panel are missing. …I apologize for this and any perceived miscommunications from the Finra staff about the status of the recordings. …I understand Mr. Mensack’s disappointment with the arbitrator’s decision. However, Finra has no authority to reverse the award.”

So, what do you think? Do you want FINRA overseeing your practice or regulating your investment adviser? Probably not, heh? I thought so.

Might be prudent to get involved? Just a little.

Who else is a stalwart supporter of your interests and is also exceptionally leery about the prospects of FINRA overseeing the regulation of the investment advisory industry? The Investment Adviser Association. Given the very serious concerns I have on this topic, I welcome providing the following links to IAA pages:

1.  Additional Resources on H.R. 4624, the “Investment Adviser Oversight Act of 2012”

This link provides IAA Testimony and Comment Letters, Economic Cost/Analyses & Additional Reports, Media Coverage and Other Perspectives

2. Advocacy: Take Action and Oppose an Adviser SRO Mandate

The House Committee on Financial Services may soon vote on legislation intended to give FINRA authority over most SEC-registered investment advisers.

The Investment Adviser Oversight Act of 2012 (H.R. 4624), introduced by Committee Chairman Spencer Bachus (R-Ala.) on April 25, would mandate SRO membership for SEC-registered advisers, subject to exclusions for certain advisory firms (i.e., firms with 90% AUM in mutual funds, private funds, or qualified purchasers, including clients with $5 million in investments).

Rep. Bachus’ bill is strongly supported by FINRA and is likely to be considered the Financial Services Committee in May.

We urge you, and as many of your firm colleagues as possible, to contact the elected representatives that represent the area in which your firm is located and, if different, your residence to express your opposition to H.R. 4624.

For background on the Bachus SRO bill, please review the following materials: IAA Talking PointsDescription of H.R. 4624, and H.R. 4624 full text.

We greatly appreciate your assistance on this critically important issue. Please contact IAA Vice President for Government Relations Neil Simon or the IAA legal team with any questions at (202) 293-4222.

Contact your elected representatives via this link.

GET INVOLVED and let’s bring some real “sense on cents” to Capitol Hill.

Larry Doyle 

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.


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