Conference Call: AARP seeks regulation of all investment advisers

AARP is seeking comprehensive regulation of investment advisers.

“In general, we believe Congress should provide for the regulation of investment advisers,” Charles Leven, AARP vice president-secretary/treasurer, said last week at the annual public policy conference of the North American Securities Administrators Association Inc. in Washington.

Mr. Leven said the 35 million-member organization for those over 50 is seeking regulation of investment advisers “and others who provide financial services, to cover all individuals, firms or institutions offering financial advisory services.”

Regulation under the Investment Advisors Act “should be mandatory, and not limited by the type of investment advice or the nature of the advising entity,” he said.

“And a complete disclosure of their fees, commissions and potential conflicts of interest should be required,” Mr. Leven added.

In an interview with InvestmentNews, AARP senior legislative representative Roy Green said the organization is developing a position on regulating investment advisers.

AARP’s board of directors in late February adopted a legislative agenda that includes pushing for comprehensive investment adviser regulation, he said.

“This would be a new construct,” Mr. Green added. “What we have in mind is, there would be a dual approach of federal and state” regulation.

A federal and state system for regulating registered investment advisers already exists.

The Securities and Exchange Commission regulates all investment advisory firms with assets of more than $25 million. Advisory firms managing less money fall under the purview of state securities regulators.

But, Mr. Green said, “we would expect it to be more comprehensive. All would have to be registered.” AARP wants to guard against people who bill themselves as financial advisers or financial planners “who have literally put their shingles out.”

Mr. Green said AARP plans to discuss the topic with new SEC Chairman William Donaldson and SEC staff members, as well as the Financial Planning Association.

AARP hasn’t yet determined whether it supports establishing a self-regulatory organization for the investment advisory industry, Mr. Green said. The SEC has put forward a concept release on the issue and is currently seeking public comment.

Duane Thompson, Washington-based director of government relations for the FPA, notes that his organization has called for members of all industries who act as investment advisers to be regulated under the same rules as registered investment advisers.

However, the Atlanta- and Denver-based association doesn’t support an SRO for the industry.

“The framework’s already there,” says Mr. Thompson.

“If they’re talking about functional regulation extending to other parts of the industry, we would be supportive of a level playing field. But if they’re talking about more regulation of investment advisers, we’d have to look at what they’re talking about,” he adds.

In his comments to NASAA members, AARP’s Mr. Leven said the SEC and states should require broker-dealers to disclose detailed information to investors regarding the total amount of fees and commissions investors pay for investing in a particular product.

As of this year, the Certified Financial Planner Board of Standards Inc. in Denver requires CFPs to disclose either the dollar amount of commissions charged for products or the amount of fees charged as a percentage of assets.

Mr. Leven also said, “Investment prospectuses and other literature should clearly and fully disclose information such as a mutual fund’s yield, before-tax and after-tax performance returns, administrative costs and the risks of investing.”

The items listed by Mr. Leven are already required to be disclosed.

Chris Wloszczyna, a spokesman for the Investment Company Institute in Washington, says some items must be disclosed in prospectuses, which are meant to be read before investors buy a fund.

Other items may be required to be disclosed in shareholder reports, which are sent to people who have already invested in a fund.

“It may not be necessary to repeat all information,” Mr. Wloszczyna says. “Fund literature has all those bases covered.”