Despite tabling his controversial SRO (self regulatory organization) bill last month, Financial Services Committee Chairman Spencer Bachus (R., Ala.) revived the conversation around adviser oversight and the need for an SRO in a Wall Street Journal op-ed this week. His rant was met with cheers and jeers from both sides of the debate. It also begs the question of whether he intends to bring the bill back to the congressional floor.

“We’re pleased to read the op-ed, and see that the chairman has not lost his passion for this issue,” said Dave Bellaire, general counsel and director of government affairs at the Financial Services Institute. “It’s important that this issue remain alive and being discussed.”

David Tittsworth, executive director and executive vice president of the Investment Adviser Association, said he was surprised and confused by the op-ed, given that Bachus said he would not move forward with the bill, absent a bipartisan consensus. In a congressional hearing in June, Tittsworth received several questions from Republicans, indicating that they’re uncomfortable with the bill. But Tittsworth believes the op-ed is written to generate support for the bill, which, in his opinion, is inconsistent with what Bachus has said.

Investment adviser advocates scored a major victory when Bachus tabled his SRO bill on July 25. His decision followed the introduction of the Investment Adviser Examination Improvement Act of 2012 by Congresswoman Maxine Waters (D., Calif.). Unlike Bachus’s bill, Waters’ bill would provide funding to the SEC to boost its investment adviser oversight program, something the SEC staff initially recommended in Dodd-Frank reform. Waters believes this is a more efficient approach to overseeing advisers.

Despite the Waters bill introduction, Bachus’s op-ed indicated that he’s not backing down from his views.

“Opponents recently offered the proposal that investment advisers be required to pay a fee to the SEC that would be used to increase the number of exams,” Bachus wrote. “But the SEC has informed Congress that even if it received increased funding this year, it would be able to examine only one in 10 investment advisers annually. This is unacceptable.”

But this is only the case under the President’s budget, Tittsworth said, not under Waters’ proposed bill. Under the Waters bill, the SEC could impose user fees on advisers solely for the purpose of increasing the frequency of adviser examinations.

Brian Hamburger, founder and managing director of MarketCounsel, a business and regulatory compliance consulting firm to RIAs, has spoken out against several points made in the op-ed, saying that Bachus assumes that financial firms subject to SRO membership are better regulated because they’re examined more frequently. But because of investment advisers’ different business model, it’s not an apples-to-apples comparison.

“It’s like saying that private home pools need to have lifeguards on duty at all times because water parks are required to do so,” Hamburger told WealthManagement.com. “Investment advisers’ activities are far less risky than their financial services counterparts.  Investment advisers provide advice about securities for compensation on a fully-disclosed basis while mitigating conflicts of interest and holding themselves to a fiduciary standard of care. Unlike broker-dealers who operate in a business model that is rife with conflicts of interest.”

But FSI’s Bellaire doesn’t buy that argument, and that’s not the issue at stake here, in Bachus’s op-ed.

“The vast majority of financial advisors are offering their advice free from conflicts, either because they are obligated to do so or because they know it’s the right way to build their business,” he said. “What we’re talking about here is how do we ensure that the minority are living up to their obligations, and how do we uncover those who are not. It seems to me that that requires some form of routine regulatory examination.”

Investment advisers have their own conflicts of interest, Bellaire added.

“While a financial advisor affiliated with a broker/dealer has a variety of mutual funds to choose from and might have a conflict about offering one over the other because of a small differential in compensation, investment advisers have a conflict whereby they either recommend their own services or they don’t get paid. They are the product. It strikes me that that’s a very significant conflict that isn’t discussed often enough.”

In the op-ed, Bachus argues that investment adviser organizations are lobbying against the bill because they don’t want increased oversight. But Tittsworth said the IAA has talked about its support for strengthening oversight of advisers with the SEC for years; the issue, rather, has been how do they get there.

Hamburger also takes issue with Bachus pinning the Bernie Madoff scheme on the SEC’s lack of oversight, given that many major frauds have occurred under FINRA’s jurisdiction. He cites such frauds and institutional failures as Allen Stanford, Bear Stearns, Lehman Brothers, MF Global and Peregrine Financial Group.  

“Most investment advisers are smaller entities,” said Bellaire, in response. “When they blow up, it tends to be a local story in the local newspaper. It’s not one that garners national attention.”

“In constantly raising the specter of more Bernie Madoffs ripping off the public without an adviser SRO, Chairman Bachus’s op-ed ignores the fact that for the better part of the 20 years the Ponzi was in operation, Madoff was regulated as a broker-dealer by the securities industry’s SRO FINRA, which is also the presumptive favorite for the adviser SRO role," said Blaine Aikin, CEO of fi360.