GAO Concludes Existing Regulation Covers Financial Planners
No additional layer of regulation of financial planners appears to be currently needed, the Government Accountability Office (GAO) concluded in a study and recently released report.
The GAO study and report (GAO-11-235) were mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to examine the effectiveness of federal and state oversight of financial planners and to assess alternative regulatory approaches.
In the report, the GAO emphasized that “existing statutes and regulations appear to cover the great majority of financial planning services, and individual financial planners nearly always fall under one or more regulatory regimes, depending on their activities. While no single law governs the broad array of activities in which financial planners may engage, given available information, it does not appear that an additional layer of regulation specific to financial planners is warranted at this time.”
The GAO did find, however, that although financial planners’ activities are generally covered by existing regulations, some consumer protection issues still need to be addressed. It recommended that the National Association of Insurance Commissioners (NAIC) assess consumers’ understanding of the standards of care associated with the sale of insurance products and that the SEC determine how well investors understand financial planners’ titles and designations. The SEC also should collaborate with states to determine how they might better understand problems associated with financial planning activities of investment advisers.
Financial planners generally are regulated as investment advisers or under some other existing regulatory regime, the GAO said it learned from financial services industry representatives interviewed, as well as staff of the SEC, North American Securities Administrators Association and state securities regulators. Any services financial planners offer that do not fall under such regulation could fall under the jurisdiction of the Bureau of Consumer Financial Protection (CFPB) created by the Dodd-Frank Act, respondents told the GAO. In meetings with the GAO, the AICPA said additional oversight of financial planning would be duplicative for CPA financial planners, for two reasons: (1) The CFPB has oversight over financial planning that is not currently regulated, thereby eliminating any gaps in regulation; and (2) CPAs are subject to regulation by their state boards of accountancy in any advice that they provide and by the SEC or states when providing investment advice. However, some respondents told the GAO that “patchwork regulation of financial planning advice,” with one set of laws covering investment advice and another regulating the sale of products, leaves a regulatory gap. Nonetheless, some overlap “may be appropriate since the regulatory regimes cover different functional areas,” the GAO said it was told by a number of state regulators.
“Existing statutes and regulations appear to cover the great majority of financial planning services, and individual financial planners nearly always fall under one or more regulatory regimes, depending on their activities,” the GAO concluded. “While no single law governs the broad array of activities in which financial planners may engage, given available information, it does not appear that an additional layer of regulation specific to financial planners is warranted at this time.”
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