[ by Larry Goldfarb ] Financial firms were hoping that the Financial Industry Regulatory Authority (FINRA) did not become the single regulator for Broker Dealers and Registered Financial Advisors which includes Hedge Funds and Registered Advisors.  Their advocacy groups were hoping to derail or delay new regulatory oversight.  But now,  they have a new Plan B: back a new regulator.   That new regulator is none other than Finra and believe it or not, the plan is gaining traction in some corners of the financial world. The Financial Services Institute, a prominent industry trade group, outlined on Monday the case for making FINRA the new regulator of investment advisers.  In a letter to members, the group’s chairman, Joseph R. Russo, emphasized his "good working relationship with" the self-regulator. Citing "many wins" with FINRA, including efforts to change proposed regulations, Mr. Russo sought to allay concerns among members with a cautious endorsement. "Finra, as we said from the beginning, isn’t perfect," he wrote.  "They are actually nowhere near perfect. But, they do have the resources to do the job, and they would be much more affordable for our members."  He also cited industry poll numbers that indicated strong support for Finra.  Under legislation pending on Capitol Hill, Finra, the brokerage industry’s private self-regulator, would receive broad new oversight powers.  The bill affecting so-called investment advisers, introduced last month by the House Financial Services Committee, would shift oversight from federal authorities to groups like Finra that are financed by the financial industry. Still, some investment advisers have balked at FINRA, fearing that the regulator is unfamiliar with their industry.  Unlike the brokerage firms under FINRA’s purview, investment advisers have a fiduciary duty, a strict legal standard to offer products that are in the best interests of their clients.  Brokerage firms follow a lesser "suitability" standard.  The standards are not the only differences.  Investment advisers currently face a lighter regulatory touch.  The SEC, the federal regulatory agency that polices the financial markets, examined only 8% of investment advisers last year, lawmakers say.  That translates to an exam every dozen or so years.  In contrast, FINRA examined 58% of broker dealers last year.  Yet, Office of Compliance Inspections and Examinations, OCIE, the group within the SEC that performs the examinations, is universally lauded for performing thoughtful and comprehensive exams.  On the other hand, FINRA, with its staff in contant flux moving between members firms and the regulats, is often found guilty of analyzing the low hanging fruit at the expense of the  more difficult to identify issues. Next week, at a public hearing in Washington, the House Financial Services Committee will examine this gap and its new attempt at oversight.  The committee’s plan to empower self-regulators to oversee investment advisers grew out of the Dodd-Frank regulatory overhaul law, which ordered the SEC to study its own oversight efforts.  The study, released in early 2011, concluded that the agency must either receive a bigger budget from Uncle Sam or farm out the job to a self-regulator. The Financial Services Institute, forced to pick is poison, aligned with Finra.  Or, as Mr. Russo put it, "There is no escaping the fact that this is a classic ‘the devil you know versus the devil you don’t’ situation.  He added that, "For us, the answer wasn’t pleasant, but it was simple: the devil we know." For further details, go to [Dealbook, 5/30/12].