FPA urges SEC to restrict Finra’s enforcement authority

The Financial Planning Association has urged the Securities and Exchange Commission to restrict the Financial Industry Regulatory Authority Inc.'s enforcement power.

The Financial Planning Association has urged the Securities and Exchange Commission to restrict the Financial Industry Regulatory Authority Inc.’s enforcement power.

In an Aug. 17 letter to SEC Chairman Mary Schapiro, the FPA urged the commission to clarify and restrict the scope of authority of Finra.

In the letter, which was written in response to a recent enforcement action taken by Finra against a broker-dealer and stockbroker for advertising and sales violations involving misleading financial plans, the FPA questioned whether investors would have been better-served under the fiduciary protections of the Investment Advisers Act of 1940.

“Due to Finra’s absence of legal authority to regulate broad financial planning activities, and to its inability to impose a fiduciary standard that would enhance investor protection, we believe this task is best carried out by the SEC,” FPA president Richard Salmen wrote.

Mr. Salmen is also a senior vice president at GTrust Financial Partners of Topeka, Kan., which manages $400 million.

On Aug. 6, Finra fined Ameritas Investment Corp., a dually registered broker-dealer and investment adviser based in Lincoln, Neb., $100,000 for not supervising a broker who convinced customers to take on additional mortgage and home equity debt to buy variable universal life insurance policies to fund college expenses and retirement.

While the FPA commended Finra for taking steps to curb fraudulent activities, the Ameritas case involved “the marketing, development and implementation of misleading financial plans,” the letter said.

FPA’s letter is the latest twist in the battle over who will regulate investment advisory firms and financial planning activities.

Finra, based in New York and Washington, wants to take over regulation of investment advisory firms from the SEC, saying it has the resources to supervise both groups.

Investment advisers, however, oppose being regulated by Finra.

They say it is not well-suited to regulate investment advisory firms, which come under fiduciary standards, and fear that the group would weaken fiduciary standards to accommodate the brokers that Finra is accustomed to regulating.

The FPA and other financial planning groups have called for creating a professional-review organization to oversee financial planners.

“FPA has long expressed concern with Finra expanding its regulatory jurisdiction to include investment advisers and financial planners,” the FPA letter said.

It asked the SEC to review the extent to which Finra is allowed to take enforcement actions based on financial planning activities of brokerage firms, and whether the SEC has a policy by which Finra may refer such cases.

“Finra is surprised FPA would cite the Ameritas case as an example of why there should be less regulatory oversight of financial professionals. Instead of being outraged by conduct that has harmed investors, FPA seems to be upset that Finra brought disciplinary actions against Ameritas and its broker and provided compensation to affected customers,” Herb Perone, Finra spokesman, said in an e-mail.

The SEC declined to comment, agency spokesman John Heine said.