SEC seeks budget increase to add 13 adviser examiners

Agency wants to start hiring again after two-year freeze

Feb 12, 2018 @ 2:12 pm

By Mark Schoeff Jr.

The SEC is seeking a $52 million budget boost to hire more personnel, including 13 new examiners to oversee investment advisers.

According to the 2019 fiscal budget released on Monday, the SEC is asking Congress for $1.66 billion, a 3.5% increase from its current $1.60 billion budget.

The SEC will use the extra funding to create 100 new jobs, including 13 new personnel in the Office of Compliance Inspections and Examinations to conduct investment-adviser and investment-company examinations.

The SEC's budget has remained flat at approximately $1.60 billion over the last two fiscal years, a time in which it also imposed a hiring freeze.

The additional OCIE personnel are required for the SEC to keep pace with the growth of the advisory sector. The agency oversees approximately 12,000 registered investment advisers who have $70 trillion in assets under management, three times the AUM that registered advisers had 15 years ago.

The SEC said that it examined about 15% of advisers in fiscal 2017, and about 35% of advisers have never been examined. The government fiscal year runs from Oct. 1 through Sept. 30.

The funding request would enable the SEC to have one staff member for every 20 investment advisers.

"In addition, it is anticipated that the population of investment advisers will be larger and more complex than ever," the SEC budget request states. "With the resources requested, the staff will continue efforts to improve overall coverage of investment advisers, including an emphasis on the nearly 35% of advisers who have never been examined."

The SEC did not have an estimate of what percentage of registered advisers it could cover with the additional personnel it is requesting.

In recent years, the SEC has considered a rule that would allow non-governmental examinations of investment advisers. But SEC Chairman Jay Clayton has shelved that idea in favor of increasing the number of exams through better use of technology.

In 2016, the SEC shifted about 100 broker-dealer examiners to the investment-adviser side of OCIE to bolster coverage of advisers.

Last week, the SEC released its examination priorities, and the budget request amplified them.

"OCIE will dedicate resources toward examining practices that represent risks to retail and retirement investors, such as services offered from remote locations and fee structures that create conflicts, as well as examining for indications of churning, reverse churning, unsuitable recommendations, deceptive sales practices, misleading disclosure and elder issues," the budget request states.

In addition to the OCIE staff increase, the SEC said that it would add seven positions in the Division of Investment Management and 17 in enforcement, which would help staff its new Retail Strategy Task Force that is zeroing in on hidden fees, among other adviser-rule violations.

Four additional staff would be devoted to expanding SEC efforts on cybersecurity protections.


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