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Oversight bill stirs controversy among investment advisors, auditors, financial planners

Auditors and financial advisers are up in arms over a proposed bill to shift o

A recent move from the U.S. House of Representatives to shift oversight of investment advisers from the Securities and Exchange Commission to a self-regulatory organization has stirred up a whirlwind of opposition from auditing groups, industry analysts and financial firms.

Under the Investment Adviser Act of 2012, introduced by Alabama Republican Spencer Bachus and co-sponsored by New York Democrat Carolyn McCarthy, financial advisers would pay membership fees to a self-regulatory organization, something industry groups say would be much more expensive than the current model of SEC oversight.

"While we agree with Chairman Bachus that better oversight of investment advisers is needed, we oppose the legislation introduced in the House of Representatives," said leaders of the Financial Planning Coalition, which represents roughly 75,000 financial planners. "As a recent Boston Consulting Group study found, outsourcing SEC oversight to a new SRO would be twice as expensive as directing adequate resources to the current SEC oversight program. Building on the SEC's existing infrastructure and experience is a better option than creating an added layer of regulation, and could be accomplished more quickly and effectively, and at far less cost."

Accountants aren't very pleased with the move, either, and if there's one group that could accurately determine the real cost of the bill, the American Institute of CPAs would be it. AICPA chief executive Barry Melancon notes many of his group's members work with registered financial planning firms.

“We believe that the SEC’s core mission to protect investors requires adequate regulation of the investment advisory profession," Melancon said. "The SEC remains the proper regulatory body to protect the public’s best interest. Providing the SEC with resources to properly enforce their rules is the best solution for investors and the public.”

One of the issues the bill attempts to address, according to Chuck Jaffe of the Wall Street Journal's MarketWatch, is the different levels of oversight required for investment advisers and broker-dealers. The latter group provide advice to their clients while getting paid to make investments, which in the past has caused confusion over agency loyalties. Investment advisers, who would be primarily affected by the bill, offer advice without making investments for their clients.

This distinction, Jaffe notes, means investment advisers are responsible solely to their clients, and it is in their best interest to help them succeed. And while federal regulators may not be scrutinizing financial advisers as thoroughly as dealer-brokers - Jaffe points to a statistic showing the SEC investigated 58 percent of dealer-brokers in 2011 compared with 8 percent of financial advisors - they are being closely monitored by state regulators, making the logic behind the bill faulty and the legislation itself unnecessary.

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