Waters introduces bill to fund investment adviser examinations

Despite new push, user-fee idea failed in 2012 and has uphill battle again

By Mark Schoeff Jr.

Apr 19, 2013 @ 11:57 am (Updated 3:07 pm) EST

SEC, oversight, Finra, Waters, user fee
Trying again on SEC user fees: Rep. Maxine Waters Photo: Bloomberg

Rep. Maxine Waters, D-Calif., today introduced legislation that would allow the Securities and Exchange Commission to charge user fees to investment advisers to fund oversight of the industry.

The measure addresses widespread concern that each year, the agency examines only about 8% of the approximately 11,000 registered advisers. Ms. Waters said that the SEC needs a source of revenue dedicated to regulating advisers and the bill would authorize fees to fund examinations.

“This legislation answers a funding gap which has been largely responsible for the infrequency of investment adviser exams, and represents the simplest and most direct method for achieving the desired result: improved quality and quantity of these exams and another step toward restoration of public confidence in the markets,” Ms. Waters, the ranking Democrat on the House Financial Services Committee, said in a statement.

Under the measure, the user fees would be set by the SEC based on the cost and frequency of inspections and an adviser's size and assets under management, types of clients and risk characteristics.

Ms. Waters introduced her user-fee bill last year, as well, but it died without a vote after strong resistance from investment advisers. Similarly, a bill that would establish one or more adviser self-regulatory organizations, sponsored by Rep. Spencer Bachus, R-Ala., then-chairman of the House Financial Services Committee, also died in committee without receiving a vote.

The new chairman of the committee, Rep. Jeb Hensarling, R-Texas, has expressed no interest so far in an SRO bill. Richard G. Ketchum, chief executive of the Financial Industry Regulatory Authority Inc., has indicated that Finra has pulled back from its lobbying effort to become the adviser SRO.

But now, with the re-introduction of her user-fee measure, Ms. Waters has breathed new life into the adviser-oversight debate on Capitol Hill.

“We're delighted that Ms. Waters continues her commitment to this issue,” said Neil Simon, vice president for government relations at the Investment Adviser Association. “We think [the user fee bill] offers the best hope for providing a stable source of funding for [the SEC] to examine advisers more frequently.”

But the bill faces an uphill climb in Congress. It will be difficult for Ms. Waters, who introduced the bill with Rep. John Delaney, D-Md., to generate Republican support in the House.

“There has been relatively little bipartisanship in the House Financial Services Committee,” Mr. Simon said. “I am hopeful that will change.”

He said the prospects are better for Republican backing in the Senate, if a similar bill is introduced in that chamber.

One of the selling points for Mr. Simon and other backers is that a user fee obviates the need for an additional congressional appropriation to the SEC.

“This is not and should not be viewed as a partisan issue,” Mr. Simon said. “I am cautiously optimistic that this legislation will advance in this Congress.”

The bill has the backing of a wide range of adviser advocacy organizations. In addition to IAA, they include the North American Securities Administrators Association Inc. and the Financial Planning Coalition, which is made up of the Certified Financial Planner Board of Standards Inc., the Financial Planning Association and the National Association of Personal Financial Advisors.

“State securities regulators and the investment adviser industry agree that authorizing the SEC to collect user fees from the investment advisers it examines is the most effective and efficient way to provide for more robust oversight of federally registered advisers,” A. Heath Abshure, Arkansas securities commissioner and NASAA president, said in a statement.

In a 2011 SEC study, the agency indicated that it lacks the budget resources to adequately oversee advisers. It recommended three solutions: allow the agency to impose user fees on advisers, establish a self-regulatory organization for advisers or expand the reach of the Financial Industry Regulatory Authority Inc., the broker regulator, to include investment advisers who are dually-registered as brokers.

In its budget request to Congress, released last week, the SEC is seeking a funding boost of more than $350 million, part of which would be dedicated to hiring 250 new investment adviser examiners.