A group representing investment advisors is asking the U.S. Securities and Exchange Commission to keep the Financial Insurance Regulatory Authority (FINRA) from expanding its regulatory authority by getting involved in financial planning issues.

In a letter to SEC Chairman Mary Schapiro, the Financial Planning Association (FPA) questions “whether investors would have been better served under the fiduciary protections of the Investment Advisers Act of 1940, which is administered by the SEC.”

The act gives the SEC authority to regulate investment advisors who oversee client assets of $25 million or more.

A FINRA enforcement action against Ameritas Investment Corp., a Nebraska-based dually registered broker-dealer and investment advisor, and one of its brokers prompted the letter. FINRA announced Aug. 6 that Ameritas was fined $100,000 and that one of its brokers was suspended and fined in connection with the sale of unsuitable investments and related violations. The broker, who was not registered as an investment advisor representative, allegedly pitched misleading financial plans to about 220 customers. The broker then encouraged customers to refinance their homes or take out home equity loans to pay for the college and retirement planning recommendations, putting their homes at risk.

Richard Salmen

“FINRA has long warned against the problems of brokers engaging in questionable mortgage practices and, in particular, investing the proceeds in annuities or securities,” said FPA President Richard Salmen in a statement.

“As the primary regulator of Wall Street, we commend FINRA for cracking down on unsuitable sales of investment products within its regulatory authority. However, due to FINRA’s absence of legal authority to regulate broad financial planning activities, and to its inability to impose a fiduciary standard that would enhance investor protection, we believe this task is best carried out by the SEC.”

The SEC, Salmen said, directly regulates investment advisors, including financial planners who recommend securities, as fiduciary advisors. Investment adviser rules provide stronger investor protection through greater transparency of conflicts of interest and higher standards of professional conduct, he said.

Stockbrokers are subject to FINRA sales rules that require them to ensure that brokerage transactions are suitable investments, but they do not have to fully disclose all conflicts of interest or act in a fiduciary capacity that places the client’s best interests ahead of the broker’s, according to Salmen.

“As Congress undertakes reform of the financial services industry, we point to this particular case as another reason why investors remain confused and vulnerable under the current form of ‘silo’ regulation,” Salmen said. “Professional oversight of financial planners as planners – and not merely investment advisers – would help alleviate this problem by setting fiduciary standards for all financial intermediaries who engage in these services. In the meantime, we urge the SEC to assert fiduciary protections for investors where there are gaps and ambiguities in the securities laws.”

Four years ago, the SEC adopted a rule requiring brokers holding out as financial planners or developing, offering or delivering financial plans, to register as investment advisors. The rule was later thrown out by a federal appeals court for unrelated reasons. FINRA, which at the time was known as NASD, had objected to a fiduciary standard of conduct being applied to stockbrokers giving advice on the kinds of financial matters under which it recently fined Ameritas, according to the FPA.