SEC fiduciary, SRO studies in congressional limbo

No immediate plans to hold hearings on the reports; commission's budget hike in question, too

Jan 26, 2011 @ 3:52 pm

By Mark Schoeff Jr.

Between a report on strengthening investment adviser oversight and another on fiduciary duty for financial advice, the Securities and Exchange Commission gave members of Congress more than 250 pages of reading last week.

It looks as if it may take some time for Capitol Hill to read and react to the studies, which were mandated by the Dodd-Frank financial reform law.

“I have really not had a chance to sit down and digest them completely,” Rep. Scott Garrett, R-N.J., chairman of the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, said in an interview Wednesday.

Mr. Garrett's panel has jurisdiction over investment adviser issues and likely will be at the center of a congressional response to the reports.

The full House Financial Services Committee doesn't appear to have plans to hold hearings on either report in the near future. Tuesday evening, Chairman Spencer Bachus, R-Ala., released a list of 11 hearings planned between Feb. 9 and March 3. None has a direct reference to adviser issues, although the Feb. 10 session is entitled “Markup of Committee Oversight Plan,” which could touch on a range of issues.

In the report on adviser regulation, the SEC provided three recommendations for increasing examinations and monitoring of advisers: authorize the commission to impose user fees on advisers to bolster its enforcement efforts, allow the SEC to designate one or more adviser self-regulatory organizations, or grant the Financial Industry Regulatory Authority Inc. the power to examine broker-dealers who are dually registered as investment advisers.

Congress must authorize any of the three options before the SEC can implement them.

In the other report, the SEC called for a universal fiduciary standard that would require anyone providing retail investment advice to put the interests of the client first — the rule that currently governs investment advisers. It said that establishing a fiduciary duty would better protect investors confused by the differing standards that advisers and broker dealers must meet.

Written by the SEC staff, the study leaves the details of a fiduciary regulation to the agency's commissioners. Dodd-Frank gives the SEC the option of proceeding to write a rule. House or Senate financial committees, however, may want to hold hearings before rulemaking commences.

The SRO report explores whether the SEC has the resources to conduct appropriate oversight of investment advisers. The agency reviews about 9% of advisers annually.

SEC budget constraints have been exacerbated by the continuing resolution that is in place until March 4, which forces federal agencies to operate under their fiscal year 2010 budgets until Congress passes a new budget. Meanwhile, the new Republican majority in the House is seeking to implement about $60 billion in spending cuts in fiscal year 2011.

On Tuesday, Rep. Barney Frank, D-Mass., ranking member of the House Financial Services Committee, said that the SEC and the Commodity Futures Trading Commission are underfunded because they have not received the hefty budget increases authorized by the Dodd-Frank bill. The agency must implement nearly 100 regulations and conduct nearly 20 studies under Dodd-Frank, in addition to its normal workload.

“A dramatic spending increase to fund the SEC and CFTC, as envisioned by the authors of the Dodd-Frank legislation, would further the mindset that our nation's problems can be solved with more spending, not more efficiency,” Mr. Garrett said in a statement Tuesday.

In the Wednesday interview, Mr. Garrett said that he was heartened by a meeting with SEC Chairman Mary Schapiro on Tuesday in which she indicated that she would respond to a recent executive order from President Barack Obama directing federal agencies to review and streamline outdated regulations.

The SEC is not governed by the order, as it is an independent agency.

“She wants to make a complete review of the operations at the SEC, including rules as well,” Mr. Garrett said.

It's unclear whether Ms. Schapiro's effort will affect Dodd-Frank implementation. White House officials have said that Mr. Obama's executive order would not influence Dodd-Frank or health care reform rule writing.


What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Apr 26


Cracking the Code: Making Sense of Alternative Investments

InvestmentNews Research estimates that $150 billion in alternative assets could be added to client portfolios among independent advisers over the next three years. Roughly 85% of all clients are now expressing interest in learning more... Learn more

Accepted for 1 CE Credit by the CFP Board. Pending by Investments & Wealth Institute for 1 credit towards the CIMA® and CPWA® certifications.

Featured video


How 401(k) advisers can use 'centers of influence' to grow their business

Leveraging relationships with accounting, benefits, and property and casualty insurance firms can help deliver new business leads for retirement plan advisers.

Latest news & opinion

Things are looking up: IBDs soared in 2017

With revenue up, interest rates rising and regulation easing, IBDs are soaring.

SEC advice rule may give RIAs leg up over broker-dealers

Experts say advisers will be able to point to their role as fiduciaries as a differentiator in the advice market.

Brokers accept proposed SEC rule on who can call themselves an adviser

Some say the rule will clear up investor confusion, but others say the SEC didn't go far enough.

SEC advice rule: Here's what you need to know

We sifted through the nearly 1,000-page proposal and picked out some of the most important points.

Cadaret Grant acquired by private-equity-backed Atria

75-year-old owner Arthur Grant positions the IBD for the 'next 33 years.'


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print