Fewer advisers than expected switch to state oversight

Mergers, closings and growth lead to about 2,100 advisers moving vs. 4,000 forecast

May 17, 2013 @ 1:57 pm

By Mark Schoeff Jr.

regulation, oversight, SEC, adviser, NASAA
+ Zoom

Fewer SEC-registered investment advisers made the transition to state oversight than anticipated when the Dodd-Frank financial reform law was enacted three years ago, according to a report by state securities regulators.

When the North American Securities Administrators Association Inc. first testified before Congress about the so-called “switch” in 2009, while the Dodd-Frank legislation was being crafted, the organization estimated that about 4,000 advisers would move to the states from the Securities and Exchange Commission.

Now that the switch is complete, the number has turned out to be about 2,100, the NASAA report states.

The smaller wave did not surprise the organization. Over the nearly three years it took for the switch to be completed — from Dodd-Frank enactment in July 2010 to last February — some firms went out of business and others merged, while others grew to reach an asset level that qualified them to maintain SEC registration.

“It was always a moving target,” NASAA spokesman Bob Webster said.

Under Dodd-Frank, advisers with assets under management between $25 million and $100 million were moved to state oversight from SEC jurisdiction. The goal was to ease the SEC's responsibility for RIAs and make room for the private fund advisers that the SEC had to take on due to Dodd-Frank.

At the beginning of the year, the SEC had 10,754 registered investment advisers under its jurisdiction, with assets under management totaling $49.6 trillion, according to the agency's budget request to Congress. Since Dodd-Frank went into effect, the agency has added about 1,400 previously unregistered private-equity and hedge fund advisers.

The report provides a history of the switch, a term that was developed during a NASAA strategy meeting in Baltimore in July 2010.

The state regulators promoted the move as a way to strengthen oversight of advisers, arguing that they are in the best position to keep tabs on the smaller firms.

It also gave them a chance to extend their reach, which had diminished since the passage of the National Securities Markets Improvement Act of 1996, according to the report.

“We lost a lot of regulatory authority in NSMIA, and I wanted to make sure that in Dodd-Frank, the states did not lose any more,” former Texas securities commissioner and former NASAA president Denise Voigt Crawford said in the report. “The best defense was a good offense. We were going to try to achieve greater jurisdiction in Dodd-Frank.”

The switch process deepened the relationship between state and SEC regulators.

“The IA switch is the most collaborative we've been with the SEC, post-NSMIA,” Melanie Senter Lubin, Maryland securities commissioner and chairwoman of the NASAA Switch Task Force, said in the report.


What do you think?

View comments

Recommended for you

Featured video


The Fuse impact: The judges weigh in

When vying for top honors at Fuse, it all comes down to a panel of judges. Hear directly from them on what they're looking for in finalists, and what gets them excited about this event every year.

Video Spotlight

Are Your Clients Prepared For Market Downturns?

Sponsored by Prudential

Recommended Video

Path to growth

Latest news & opinion

Jerry Schlichter's fee lawsuits have left an indelible mark on the 401(k) industry

After a decade of litigation, fees are lower and retirement plans are more transparent. But have the lawsuits gone too far?

10 best financial adviser jokes

How many financial advisers does it take to screw in a lightbulb?

With margins crashing, broker-dealers look to merge: report

Increased regulation is straining profit margins among broker-dealers, sending many of them into the arms of their bigger brethren.

Hackers may have profited from SEC breach

The hack of the agency's Edgar filing system occurred in 2016, but the regulator didn't conclude until last month that the cybercriminals may have used their bounty to make illicit trades.

Top 10 financial firms ranked by investor satisfaction

Find out which firm took the top slot for overall investor satisfaction for the second year in a row.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print