RIA Compliance Blog
According to an InvestmentNews poll, 58.7% of 293 advisers who responded to a recent survey support the option of the Securities and Exchange Commission (SEC) charging user fees to defray the costs of increased examinations. This is an increase from a year ago when only 27.8% of 335 responding advisers supported the user fee approach. The poll also concluded that 74.7% of advisers said they oppose permitting the Financial Regulatory Authority (FINRA) from becoming the self regulatory organization (SRO) for advisers.
The increased willingness of advisers to pay user fees suggests that there could be more support for the bill soon to be introduced by Rep. Maxine Waters (D-CA) that would authorize the SEC to charge user fees for advisers to cover or defray the costs of examinations. Rep. Waters’s bill would combat the SRO bill introduced by Rep. Spencer Bachus (R-Al) and Carolyn McCarthy (D-NY).
Rep. Bachus was hoping a vote on the SRO bill would come before the end of June; however, the House Financial Services Committee did not include the bill on the remainder of its June schedule. Critics of the bill – including those supporting user fees – now have more time to build their case against creating an SRO. David Tittsworth, Director of the Investment Adviser Association (IAA), stated, “Any delay at this point is good news. I’m pleased they moved a vote beyond June.”
In his speech to the House Financial Services Committee on June 6, Rep. Bachus stated that the SRO bill “helps close what everyone agrees is a glaring regulatory gap – a gap that puts the average American investor at risk and undermines investor confidence.” He noted that the Securities and Exchange Commission (SEC) only examines about eight to nine percent of investment advisers per year and that thirty-eight percent of investment advisers have never been examined. Rep. Bachus’s proposed solution is to place investment advisers under the regulation authority of an SRO. Bachus openly supports FINRA, though his bill does not mention it by name.
During the hearing, some of those opposed to the new bill expressed concerns about the cost of creating an SRO. A poll released by the Massachusetts Securities Division showed that investment advisers oppose an SRO because they believe it will become an extensive cost burden on them. More than half of Massachusetts’s advisers responded to the poll, and 79% of the responses reported having less than $30 million in assets under management. 41% of those who responded believe that the new bill will probably put them out of business if it is passed as drafted.
In response to this issue, Rep. Bachus said that he would consider amending the bill so that small advisers would only pay a “de minimus” membership fee. This compromise may not satisfy larger investment adviser firms, however, because the cost of the SRO would still need to be paid by someone. Even if small firms’ fees are capped, larger firms would still have to pay the cost.
A number of groups supporting and opposing the bill started lobbying during the week of the hearing. The Financial Services Institute (FSI), which supports the bill, had about thirty meetings on June 6 with members and staff. We have previously discussed FSI’s support of the bill. FSI is trying to convince more House members to co-sponsor the bill and is trying to get members of the Senate to appeal to Tim Johnson (D-SD), chairman of the Banking Committee, to hold a hearing on the proposal.
The IAA, which opposes the SRO bill, held a lobbying day on June 7, sending fifty advisers to Capitol Hill to discuss its issues with legislators. The IAA supports Rep. Waters’s user fee approach.
Both the SRO and user fee supporters seem resigned to the fact that Congress will probably not increase the SEC budget. Last week, the House Appropriations subcommittee approved a bill that only gave the SEC $50 million out of the $245 million budget increase that it requested for 2013.
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds and issuers of securities, among others. Our regulatory practice group assists financial service providers with the complex issues that arise in the course of their businesses, including compliance with federal and state laws and rules.