During the June 6th hearing of the House Financial Services Committee, legislation was introduced by Representative Spencer Bachus (R-Ala.) that would create a new self-regulatory organization for Registered Investment Advisers “(RIA”) ( H.R. 4624).
During that session Representative Maxine Waters (D-Calif.) stated she was drafting alternative legislation that would allow the SEC to collect fees from advisers to fund the regulator’s examination program. As promised, on July 25 th, Rep.
Waters introduced the Investment Adviser Examination Improvement Act of 2012. According to the press release for the new legislation, the bill “would provide the [SEC] with the authority to impose and collect user fees on investment advisors for the purpose of increasing the number and frequency of SEC examinations.” Under the proposed law, the SEC would have a mandate to collect fees directly from advisers to cover the costs of additional examinations by the SEC. Under Water’s bill, the amount of the fee assessed to advisory firms would be based on the firm’s assets under management, the number and types of clients, as well as the firm’s risk profile.
Importantly, the measure would take funding for the SEC’s oversight of advisers outside the annual congressional budget process and create a stable source of finding for examinations.While both sides acknowledge the current system is insufficient, the competing measures underlie the divide among industry members concerning how to improve oversight of RIAs. Backers of Rep. Bachus’s measure (including FINRA, which is vying to become the SRO under that bill) argue that primary oversight should be shifted out of the SEC. Backers of Rep. Water’s proposal, however, contend that shifting oversight to an SRO doesn’t address the problem.
David Tittsworth, executive director of the Investment Adviser Association (which worked with Rep. Waters on the bill) noted: “Investment adviser user fees will be far more effective and efficient in enhancing examinations of advisers than establishing an unnecessary, additional layer of bureaucracy and cost associated with a self-regulatory organization.” Rep. Water’s release cites a recent study by the Boston Consulting Group finding “that establishing a self-regulatory organization (SRO) would likely cost twice as much as funding an enhanced SEC examination program.”Neither bill is expected to pass in the current congressional session, which ends January 2, 2013. For additional information please contact us at (619) 298-2880.
