For Now, A Wait-And-See Approach To Further Oversight On Financial Advisors

By Cyril Tuohy

InsuranceNewsNet

There are bad apples everywhere, and the world of financial advisors is no exception. It, too, has its fair share of worms occasionally spreading rot from the inside out.

To wit: John Robert Graves, 53, of Fredericksburg, Va., a former FBI agent and certified financial planner, and his wife. Both pleaded guilty last year to bilking investors out of $1.3 million by misrepresenting the kinds of insurance investments they were selling. In December, a federal judge sentenced him to 135 months in prison, according to the FBI. She will serve 36 months.

Then there was 59-year-old Gary H. Lane, of Reno, Nev., a former financial advisor with Bank of America who was indicted last August, the FBI said, on charges that he defrauded six people of more than $2 million from 2010 to 2011 in an investment fraud scheme.

And who hasn’t heard of Bernard L. Madoff, ex-NASDAQ chairman and investment advisor who bilked investors of $50 billion as part of a Ponzi scheme to which he confessed. He committed theft on such a scale that his misdeeds need no introduction.

Is it any wonder, then, that 80 percent of American investors do not believe the U.S. government is doing enough to protect them from corrupt financial advisors? Those are the latest survey statistics issued last month by the Financial Planning Coalition.

The coalition is made up of the Certified Financial Planner Board of Standards Inc., the Financial Planning Association and the National Association of Personal Financial Advisors. It represents 75,000 financial planners. The group backs legislation to collect user fees from investment advisors as a way to fund better advisor oversight through more frequent examination.

Daniel Penchina, principal with The Raben Group, which is lobbying on behalf of the Financial Planning Association, said the user-fee model was a “much more sensible approach in that it is revenue-neutral,” which remains a key consideration in an age of financial austerity.

A coalition-sponsored study by The Boston Consulting Group also concluded last year that creating a self-regulatory organization would cost as much as $610 million, far more than beefing up oversight of the financial advisors by the Securities and Exchange Commission.

“The goal is to bring investment advisor exam frequency in line with broker-dealer frequency by FINRA, which is every four years,” Penchina told InsuranceNewsNet.

But FINRA is a regulator sponsored by the broker-dealer industry, and doesn’t have the same level of expertise with financial advisors. FINRA would not exert the same rigor and impartiality over financial advisors compared to the SEC, Penchina said. Better to have the SEC responsible for financial advisor oversight, particularly if it costs less.

For now, though, pushing for greater oversight of financial advisors will have to wait, even after white-collar crime expert Mary Jo White, the former U.S. attorney for the Southern District of New York, was confirmed as the new SEC chief.

The Investment Advisor Examination and Improvement Act was co-sponsored by U.S. representatives Maxine Waters, D-Calif.; Barney Frank, D-Mass., and Michael Capuano, D-Mass., as an alternative to the Investment Advisor Oversight Act introduced last year. This will have to be reintroduced in the new Congress, Penchina said.

“Things are still in the early stages,” Penchina added. “It’s a new Congress.” But if Waters reintroduces her bill, the coalition will push hard to have to passed, he said. “At this point there has to be something of a wait-and-see approach.”

Cyril Tuohy is a writer living in Pennsylvania. He has covered the financial services industry for more than 15 years. He has also written about food, restaurants and travel. He can be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].