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The future of financial planning in the accounting profession.

This month's column will focus on recent developments relating to the securities industry as they pertain to the accounting profession. As many readers are already aware, a growing number of instances of consumer fraud previously had solidified congressional and public interest in the regulation of investment advisers and financial planners. However, many may not be aware of the renewed intensity exhibited by the 101st Congress in addressing this issue.

As part of its efforts to alleviate the burdens inhibiting effective regulation of the securities industry, the Securities and Exchange Commission (SEC) has identified its primary encumbrance as a combination of limited financial means and an increasingly unmanageable number of required filers. Though functional, the present regulatory process has become too expansive to be effective. At present, the SEC inspects each investment adviser once every 12 years and strives to target higher risk investment advisers for more frequent inspections.

Recognizing the growing instances of abuse, the SEC has aggressively pursued several regulatory alternatives, the most recent being the drafting of H.R. 2054 and companion bill S. 1410, introduced by Representative john D. Dingell (D-MI) and Senator Christopher J. Dodd (D-CT), respectively.

These legislative proposals recognize the severe regulatory constraint and an immediate need for outside relief and assistance in the oversight of financial planners and investment advisers. Upon passage, these proposals would authorize the SEC to register one or more national investment adviser associations. Such organizations would provide a self-regulatory mechanism for planners and advisers by amending the Investment Advisers Act of 1940. With mandated investment adviser and financial planner membership, self regulatory organizations would establish qualification and business practice standards, perform inspections and enforce compliance with the law, all with the oversight of the Securities and Exchange Commission. In view of the pressing need for effective regulation and oversight of financial planners and investment advisers, these proposals are uniquely creative in that they effectively privatize a federal obligation.

However, as the present legislative wording is relatively broad and general in scope, many individuals within the accounting profession could be subjected to unnecessary regulatory procedures and forced association membership. Though the National Society has repeatedly supported stricter enforcement of the federal securities laws as they currently exist, it does not support an expansion of the SEC's regulatory authority to those disciplines (such as tax planning, estate planning and other financial management advice) which may have no connection to the sale of specific investment products.

In congressional correspondence, the National Society has continuously supported the original intent of the 76th Congress, which determined that accountants should be excluded from the investment Advisers Act of 1940 because they perform investment advisory services incidental to the practice of public accounting. The definition of investment advisers or financial planners should not include attorneys, public accountants or persons engaged in tax return preparation or taxpayer representation who perform uniform advisory services that are incidental to their primary occupation.

Not new to the issue, NSPA continues to build on its original 1986 testimony before the House Subcommittee on Telecommunications, Consumer Protection and Finance (of the Committee on Energy and Commerce). During the '86 testimony, Society representatives stated that the abuses investors experience with financial planners and investment advisers are rarely described as stemming per se from the offering of general planning advice, such as traditional tax planning and estate planning services.

NSPA believes that the independent accountant is not generally involved in the sale of investment products. As Rule #9, Commissions, of NSPA's Rules of Professional Conduct, states, "A member shall not pay a commission to obtain a client nor shall he accept a commission for a referral to a client of products or services of others." In addition, NSPA's policy makes clear that an "independent practicing accountant should be exempt from any legislative or regulatory proposals to be implemented on the federal or state level" relative to financial planners.

To the extent an independent accountant is engaged in the sale of securities or investment products to the public, the National Society clearly recognizes that the accountant should be subject to the Investment Advisers Act and SEC regulation. However, it does not support an expansion of SEC's regulatory authority to those disciplines which may have no connection to the sale of a specific investment product. The Internal Revenue Service and state regulatory authorities would be considered by NSPA's membership as being more appropriate to regulate these other disciplines.

In conclusion, the National Society will continue to urge the Congress and bill proponents to strictly define the terms financial planner" and "investment adviser" so that other professions are not mistakenly caught up in the regulatory efforts. Such prudent efforts would assuredly eliminate regulatory difficulties and monetary waste.
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Article Details
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Author:Barr, Dorothea
Publication:The National Public Accountant
Article Type:column
Date:Feb 1, 1990
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