FINRA Offers Aid to SEC

Because registered investment advisors are not a self-regulating professional group, the Securities and Exchange Commission ("SEC") is responsible for ensuring proper practices. As part of that effort, the SEC now examines registered advisors once every 10 years, however, the agency has never actually examined some in the field. As the SEC begins to notice the need for more examinations of investment advisors, the Financial Industry Regulatory Authority ("FINRA") is offering its assistance. As Suzanne Boyle of the New York Times explains, "[a] comment letter to the SEC from Richard Ketchum, FINRA's chairman, extols the virtues of self-regulatory organizations to deal with the agency's limited resources." Mr. Ketchum stated in his letter that, "[g]iven the SEC's funding limits, it is unlikely that the Commission, despite its best efforts will be able to accomplish" increased examinations of investment advisors. While FINRA and the SEC examine more than half of broker-dealers annually, the SEC examines only 9% of investment advisors each year.

Numerous trade groups, including the Washington-based Investment Advisor Association, opposes increasing the frequency of examinations. The Association believes that the frequency of examinations does not necessarily correlate with quality of oversight according to the IAA's executive director, David Tittsworth. Regardless of the outcome of this matter, broker dealers and investment advisors are increasingly coming under personal scrutiny.

So what happens if this increased scrutiny leads to more reviews and more formal investigations of questionable practices? Well, first and foremost, broker-dealers and investment advisors will want to secure counsel to represent them from the very beginning.

Having counsel at the outset of an investigation can help clear up misunderstandings, protect the individual's rights, and most importantly, avoid formal prosecution while protecting everyone's reputation. Attorney Nishay K. Sanan has extensive experience in representing well-respected and successful clients who have been investigated by FINRA as well as the SEC, with positive results. Visit http://www.sananlaw.com for more information.

This post is based in part on the New York Time's November 8, 2010 article, "Finra Seeks to Examine Investment Advisers," by Suzanne Barlyn.