Washington INsider

Washington INsiderblog

Mark Schoeff Jr. looks at what's really happening on Capitol Hill - and the upshot for advisers.

SEC user fee bill faces steeper climb than SRO measure

Both on hold as House committee tries to reach consensus

Jul 31, 2012 @ 2:53 pm

By Mark Schoeff Jr.

Rep. Maxine Waters, D-Calif., a member of the House Financial Services Committee
+ Zoom
Rep. Maxine Waters, D-Calif., a member of the House Financial Services Committee

Many investment advisers cheered last week, as legislation was introduced on Capitol Hill that would keep them under the purview of the Securities and Exchange Commission. Even better for advisers, the measure had the effect of halting a bill that would shift adviser oversight from the SEC to a self-regulatory organization.

But advisers shouldn't get their hopes up about legislation introduced by Rep. Maxine Waters, D-Calif., with Rep. Barney Frank, D-Mass., and Michael Capuano, D-Mass., that would allow the SEC to charge advisers user fees to fund examinations. It faces a steeper climb than the SRO bill, which was written by House Financial Services Committee Chairman Spencer Bachus, R-Ala., and introduced with Rep. Carolyn McCarthy, D-N.Y.

Each of the sponsors of the competing bills is a member of the House financial panel. Last week, Mr. Bachus said that no legislation is moving ahead without consensus on how to strengthen investor protection by increasing the number of adviser exams performed annually.

The SEC issued a report in January 2011, mandated by the Dodd-Frank financial reform law, that said that the agency lacks the resources to examine annually more than about 8% of registered advisers, which currently number about 10,000.

The three recommendations for increasing adviser oversight -- allowing the SEC to impose user fees, establishing an SRO or expanding the reach of the Financial Industry Regulatory Authority Inc., the broker SRO, to include advisers dually registered as brokers – all require congressional approval.

Advisers see an SRO as a costly new layer of bureaucracy and stridently oppose Finra filling the SRO role. They want the SEC to remain their regulator.

The problem is that Republicans in Congress, who control the House and may take over the Senate after the November elections, are not inclined to give the SEC a significant budget increase or more latitude.

The Democratic-led Senate Appropriations Committee approved a bill that would provide the SEC the full $245-million boost to its $1.32 billion budget it requested. The Republican-led House Appropriations Committee only gave the SEC a $50-million increase. Congress is likely to pass in September another so-called continuing resolution that would keep federal agencies at roughly their current budget level into next year.

Ms. Waters' bill is designed to give the SEC the authority to generate revenue from advisers earmarked for exams.

“If you, Congress, are not willing to allocate the money, we're willing to pay for it,” said Jonathan Roberts, senior vice president and chief compliance officer at Klingenstein Fields & Co. LLC.

Mr. Roberts was one of about 50 advisers making the case for user fees in a lobbying day sponsored by the Investment Adviser Association in early June.

The challenge for advisers is to convince Republicans to get behind the idea of a user fee. Most in the GOP equate a user fee with a tax. One theory that is on the verge of becoming a natural law on Capitol Hill is that the way to coalesce Republican opposition to anything is to call it a tax.

Ms. Waters measure has a tough road ahead in gaining GOP cosponsors. One bright spot is that SRO opponents seem to have instituted a no-gloating rule over the stalling of Mr. Bachus' bill.

“We agree with Chairman Bachus that there's a serious problem with the lack of oversight of investment advisers and thank him for shining a light on the need for more examinations to better protect investors,” said Marilyn Mohrman-Gillis, managing director of public policy and communications at the Certified Financial Planner Board of Standards Inc. “We're gratified he's stepping back to look for other solutions.”

Jack Herstein, president of the North American Securities Administrators Association, wants to ensure that any new approach lets state regulators maintain their purview over small to mid-size advisers.

“The oversight of state advisers has never been called into question, until the chairman put it in his bill,” Mr. Herstein said. “Everyone agrees that the oversight of federally registered advisers should be strengthened. The chairman's bill went at it the wrong way.”

Finding path on which everyone can travel may take a long time.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Apr 30

Conference

Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video

Events

Dynasty's Penney: How to stay ahead of the curve

With rapid evolution, financial advisers stand at a unique crossroads. Dynasty's Shirl Penney offers some simple strategies to remain a step ahead of the competition.

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