Over the last several years, the Senate has developed the reputation of being the place where most House bills go to die.
That likely will be the case for a measure unveiled in the House this week that would shift investment adviser oversight from the Securities and Exchange Commission to an industry self-regulatory organization.
The
bill, introduced by House Financial Services Committee Chairman Spencer Bachus, R-Ala., and Rep. Carolyn McCarthy, D-N.Y., would authorize one or more SROs, called national investment adviser associations, that would report to the SEC. All advisers with retail clients would have to belong to one of the associations and pay membership dues.
House rules ensure that the majority, in this case Republicans, can get what it wants. Mr. Bachus' bill will almost certainly make it through his own committee, although many
Democrats may resist. If floor time can be secured, it might also garner House approval.
That's where the legislative road could end. Last fall, when Mr. Bachus released a discussion draft version of the bill, it received a cool reception from the chairman of the Senate Banking Committee, Tim Johnson, D-S.D.
“Sen. Johnson believes the issue deserves further exploration before moving forward with any legislative proposals,” his spokesman, Sean Oblack, said at the time. This week, Mr. Oblack said he had nothing to add to the statement.
If the Senate does not join the House in enacting an SRO bill by the end of the year, which is also the end of the congressional session, it must be reintroduced next year in the new Congress.
Even though that is the likely outcome, advocates on both sides of the debate are gearing up for a fight because the process — no matter how far it goes — sets a precedent on the SRO issue.
“We've known all along this is a multiyear effort,” said Dale Brown, chief executive of the Financial Services Institute Inc., which strongly backs the SRO bill. “It will help, if we can have a strong showing in the House, to keep the momentum going next year.”
Although it's likely to be only the SRO prologue, not the final chapter, it would be a mistake to ignore what the House does this year.
“Even though you start from scratch [in 2013], it kind of eases the path next year,” said Dan Barry, managing director of government relations and public policy at the Financial Planning Association. “It's kind of a head start.”
House freshman Rep. Steve Stivers, R-Ohio, a member of the House Financial Services Committee, supports the SRO bill. He's also getting used to the fact that Senate can be a graveyard for House legislation.
“I'm in the House, and I think it's got a good shot here,” Mr. Stivers said. “And I think we need to advance an agenda that makes sense. If I didn't want to do anything the Senate didn't want to do, I wouldn't do much around here.”
Mr. Stivers favors the SRO bill for the same reason that Mr. Bachus articulates. He said that an SRO would strengthen investor protection by increasing the number of annual adviser examinations.
The committee announcement noted that the SEC annually examines only about 8% of the nearly 12,000 advisers registered with the agency, while 58% of broker-dealers are examined each year by their SRO, the Financial Industry Regulatory Authority Inc.
“It'll change the mindset,” Mr. Stivers said. “Bernie Madoff was able to do what he did because nobody ever examined him.”
But investment advisers see an SRO, especially if it's Finra, as a costly additional layer of regulation by an agency that will lack expertise in the fiduciary-duty principle under which they operate.
Brian Hamburger, managing director of MarketCounsel, a business and regulatory compliance consultant, said advisers should communicate those points to lawmakers.
“The time is now for advisers to make a broader push in educating their representatives on the potential impact of this bill,” Mr. Hamburger said.
