SRO bill dead for now

Bachus says no adviser oversight legislation will move forward without bipartisan suppport; that's not likely

Jul 25, 2012 @ 2:42 pm

By Mark Schoeff Jr.

Spencer Bachus
+ Zoom
((Photo: Bloomberg News))

Hours after legislation was introduced that would maintain the Securities and Exchange Commission's purview over investment advisers, House Financial Services Committee Chairman Spencer Bachus, R-Ala., put his own oversight measure on indefinite hold.

Mr. Bachus has argued that his bill, which would create at least one self-regulatory organization to oversee advisers, would strengthen investor protection by increasing the number of examinations that are performed currently by the SEC.

Adviser groups have stridently opposed Mr. Bachus' bill, saying that it would significantly increase their compliance costs. On Wednesday morning, Rep. Maxine Waters, D-Calif., introduced a bill that would allow the SEC to charge user fees for exams, an approach advisers back.

By Wednesday afternoon, Mr. Bachus said his bill is not going anywhere for the moment.

“Everyone agrees there is a serious problem,” Mr. Bachus said in a statement to InvestmentNews. “Unfortunately, there is no consensus on how to fix it. No bill, including the bipartisan bill I offered, will move forward in the committee unless and until there is a consensus.”

It is not clear how long it will take to reach that consensus, but with the number of legislative days in 2012 quickly dwindling, it may not occur this year.

“From the beginning, I have been willing to listen to and work with anyone who has an idea about how to correct the current lack of examinations,” Mr. Bachus said. “Our only goal should be to deter bad actors and to protect American investors. I see no way to do that without timely examinations. Who conducts those examinations and how is still open for debate, as far as I'm concerned.”

Ms. Waters' measure stipulates that the revenue generated from the user fee would be dedicated to inspections of advisers registered with the SEC. The levy would be calculated based on factors including the frequency of examinations, and the adviser's size and assets under management.

The funding would be available to the SEC only if it conducts exams at a higher rate than it achieved in fiscal 2011. In that 12-month period, the agency reviewed only about 8% of its then nearly 12,000 registered advisers, according to a report it submitted to Congress in January 2011.

The study, mandated by the Dodd-Frank financial reform law, indicated that the SEC lacked the resources to adequately oversee advisers and recommended three ways to increase exams: establish a SRO for advisers; allow the SEC to charge user fees for exams; or extend the reach of the Financial Industry Regulatory Authority Inc., the broker SRO, to include advisers dually registered as brokers.

Each option requires congressional approval. Ms. Waters' bill is an alternative to Mr. Bachus' legislation, which was introduced in April. Mr. Bachus' measure worries advisers because they see it as an opening for Finra to become the adviser SRO.

“My legislation would provide a dedicated funding source to the SEC to enable a robust investment adviser oversight program,” Ms. Waters said in a statement. “I believe this approach provides the simplest, most efficient solution to the problem of inadequate adviser oversight. Also, because the user fees contemplated in my legislation would only be used to fund the regulation of investment advisers, and not to subsidize other functions at the SEC, I think that this option would be more cost effective for the industry.”

Supporters of Mr. Bachus' bill assert that Congress will never provide the SEC the funding necessary to significantly raise its adviser exam rate. They argue that an SRO is required to strengthen investor protection and ensure that advisers are regularly reviewed. Finra is lobbying to become the adviser SRO.

Observers had expected Mr. Bachus' bill to receive a vote in the House Financial Services Committee earlier this summer. The bill stalled after an early-June hearing in which adviser advocates charged that Mr. Bachus' bill would sharply increase advisers' compliance expenses.

David Tittsworth, executive director of the Investment Adviser Association, became the focal point of the June hearing as the most prominent critic of Mr. Bachus' bill. He enthusiastically endorsed Ms. Waters' legislation.

“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,” Mr. Tittsworth said in a statement. “These enhancements to the SEC's current examination program will not require the expenditure of additional taxpayer dollars.”

The Financial Services Institute is a supporter of Mr. Bachus' bill.

“Increasing the SEC budget to a level that would significantly increase consumer protect tion just isn't political reality,” FSI spokesman Chris Paulitz said in a statement. “Even [SEC] Commissioner [Elisse] Walter said a fully funded SEC wouldn't be able to significantly increase RIA examinations.”

0
Comments

What do you think?

View comments

Recommended for you

Related stories

Sponsored financial news

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

Upcoming Event

Jun 27

Webcast

Emerging Market Debt: 5 Forces at Work

When it comes to emerging market debt, there are a series of forces that help you drive better results for your clients. In today's continually changing market environment, it is critical to know the forces at play to help keep your investment... Learn more

Accepted for 1 CE Credit from the CFP Board. Approved by IMCA for 1 CIMA®/CIMC®/CPWA® CE credit. Approved for 1 CFA Credit.

Featured video

Events

Building digital relationships with a human touch

The word "robo" has stopped being a four-letter word for financial advisers. But how can it be an asset? Quovo's Jeff Hendren explains.

Video Spotlight

Will It Last As Long As Your Clients Do?

Sponsored by Prudential

Video Spotlight

The Catalyst

Sponsored by Pershing

Latest news & opinion

Brian Block's $4 million bonus was tied to a key metric at ARCP

Prosecution rests case in fraud trial against CFO of American Realty Capital Properties.

Edward Jones is winning the Google search war

Brokerage firm's digital marketing investment helps land it at the top of local and overall search engine results, report finds.

Voya's win in 401(k) fee suit involving Financial Engines bodes well for other record keepers

Fidelity, Aon Hewitt and Xerox HR Solutions are currently defending against similar fiduciary-breach claims.

Collective investment trusts getting more attention from 401(k) advisers

The funds are catching on due largely to lower costs and more product availability, but come with some inherent drawbacks.

Vanguard rides robo-advice wave to $65B in assets

Personal Advisor Services, four times the size of its closest competitor, combines digital and human touch.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print