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Finra is Considering Ending B-D Oversight of Hybrid RIAs

January 11, 2018

Broker-dealers may soon be let off the hook from supervising independent RIA activities of their hybrid representatives, and industry observers are cheering the possibility, FA magazine writes.

Finra’s staff will soon seek comment on a proposal eliminating “supervisory obligations for non-broker-dealer outside activities, including investment advisory activities at an unaffiliated third-party adviser,” according to notes from a December board meeting cited by the publication.

Currently the industry’s self-regulator requires broker-dealers to supervise the activities of outside RIAs affiliated with their brokers and to record their transactions, which has long caused headaches for brokerages, FA magazine writes. In particular, broker-dealers have been especially worried about their potential liabilities arising from a bad broker losing a client’s money and the victim’s lawyers then turning to broker-dealers in an attempt to recover lost funds, according to the publication.

Finra’s requirement on broker-dealers to supervise RIA advice businesses has been a “point of consternation” for 25 years, Alan Wolper, a partner at Ulmer & Berne LLP and a former Finra district director, tells FA magazine. The idea that Finra might do away with the requirement is good news for both firms and advisors — and it makes sense, Joel Beck of the Beck Law Firm and a former Finra lawyer, tells the publication.


“... RIAs are held to a fiduciary standard, and they’re regulated, so in my opinion we don’t need B-Ds to supervise that,” he tells FA magazine.

However, the repeal of the requirement could also hurt independent broker-dealers that have come to rely on the revenue they collect from the RIAs for supervising them, Robb Baldwin, president of TradePMR, tells the publication.

By Alex Padalka
  • To read the FA Magazine article cited in this story, click here.