WASHINGTON -- The National Association of Securities Dealers seemingly has backed away from plans to create a self-regulating organization for U.S. investment advisers, although opponents of the plan suggest the retreat is temporary.
"We are not looking to be the self-regulatory organization for investment advisers," said NASD spokeswoman Nancy Condon, when asked about the organization's latest position in the tug of war between the NASD and the Securities and Exchange Commission. The SEC is the government-appointed regulator of investment managers.
"The NASD has clammed up and gone underground with this," said a source close to the situation. "They want to get their tentacles into us, one way or another."
Actually, the NASD has just planted two feet in the regulatory doorway of the investment management business: It was appointed by the SEC to create a registration database for investment advisers; and it will administer a competency exam for advisers. The SEC, however, refused to allow the NASD to also serve as a self-regulatory organization for investment advisers.
The NASD had approached the SEC in late 1997, suggesting rapid industry changes threatened to overwhelm the SEC's current regulatory structure. Brokers were fleeing NASD oversight by becoming investment advisers, and the NASD feared a regulatory gap existed that the SEC was not prepared to handle.
Despite the SEC's decision, the NASD continues to collect information it can use to sway the SEC on the subject, according to comments made by NASD Chairman Frank Zarb at a November convention.
SEC official Paul Roye doesn't see the need for a self-regulatory organization. Mr. Roye, who is director of the SEC's investment management division, told participants at a recent conference that he wants to give other structures a chance to work first.
The Investment Advisers Supervision Coordination Act, passed in 1996, reduced the number of advisers regulated by the SEC to 7,500 from 23,000; managers with less than $25 million in assets under management are now regulated by the states.
Fewer managers to regulate has meant closer, better supervision by the SEC, said David Tittsworth, executive director of the Investment Counsel Association of America, Washington, a national not-for-profit association of federally registered investment adviser firms.
"We're starting to see what that law meant -- an increased level of (auditing) activity. It's hard for NASD now to argue that it's beyond the SEC to do this," Mr. Tittsworth said.
Data from the SEC indicate the commission expects to examine 1,300 of 6,500 firms in 1999; nearly 1,200 inspections were completed in 1998.
