State Regulators OK Advisor Scheme

Investors doing business with small investment advisory and financial planning firms could get some long-awaited help from regulators under an agreement hammered out by state securities officials. The North American Securities Administrators Assn.--which represents 50 states and the District of Columbia, 12 Canadian provinces, Puerto Rico and Mexico--announced that its members have signed a memorandum of understanding on an initiative to protect customers of investment advisory firms and financial planners who manage less than $25 million. The agreement marks the first time any regulator--national or local--has said it will supervise this largely unregulated industry. Americans increasingly rely on financial advisors and planners, who, unlike stockbrokers, may not be registered with any securities regulator. The agreement says the states will prepare a competency exam that advisors must pass before being allowed to manage other people’s money. The association’s pact comes a year after Congress delegated to the states regulatory power over second-tier advisors and planners. Under the new system, the states oversee about 19,000 firms managing about 20% of the money Americans have entrusted to advisors and planners; the SEC regulates the rest.