ASA Calls for Increase in RIA Examinations and Comprehensive Arbitration Review

WASHINGTON – The American Securities Association (ASA) today sent a letter to the Securities and Exchange Commission (SEC) outlining policy recommendations related to the use of mandatory arbitration clauses by investment advisers that the Investment Advisory Committee (IAC) will consider.

“We appreciate the IAC’s ongoing focus on investor protection issues and its interest in ensuring that the arbitration process for customers of both investment advisers and broker-dealers remains fair,” said ASA President and CEO Chris Iacovella. “To enhance investor protection and mitigate problems that stem from customer disputes, the SEC should equal the playing field for the examination of investment advisers and broker-dealers and examine the current arbitration system overseen by FINRA.”

“Any serious discussion about how to protect customers of investment advisers from bad conduct must consider the fact that investment advisers are examined by the SEC at a fraction of the rate that broker-dealers are examined,” Iacovella wrote in the letter. “Recent reports from the SEC estimate that only about 15% of investment advisers are examined every year compared to 45% of broker-dealers. Many investment advisers currently operating have never been examined by the SEC.”

“The current FINRA arbitration system has not been functioning properly for some time. In many cases, arbitrators are unfamiliar with how the broker-dealer industry works and they have begun to display a pattern of imposing substantial penalties that are not rooted in any type of economic analysis or assessment about their effect on a broker-dealer’s operations, shareholders, or other customers,” Iacovella wrote. “The public would benefit from the SEC conducting a wholesale review of FINRA's arbitration process and assess any potential changes that should be considered.”

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The American Securities Association (ASA) represents the retail and institutional capital markets interests of regional financial services firms who provide Main Street businesses with access to capital and advise hardworking Americans how to create and preserve wealth. ASA’s mission is to promote trust and confidence among investors, facilitate capital formation, and support efficient and competitively balanced capital markets. This mission advances financial independence, stimulates job creation, and increases prosperity. The ASA has a geographically diverse membership of almost one hundred members that spans the Heartland, Southwest, Southeast, Atlantic, and Pacific Northwest regions of the United States.