The Washington INsider

Politics of adviser oversight starting to change

SEC user-fee bill puts advisers on offense

Mar 15, 2013 @ 2:48 pm

By Mark Schoeff Jr.

Last year, investment advisers were playing defense on Capitol Hill on the issue of regulation. This year, they're on offense, and that gives the debate a different flavor.

In 2012, then-chairman of the House Financial Services Committee Spencer Bachus, R-Ala., introduced a bill in June that would have authorized a self-regulatory organization to oversee advisers.

Advisers worked hard to defeat that legislation, calling it a costly added layer of regulation that would threaten small advisory firms. Enough Republicans listened to that argument to prevent Mr. Bachus' bill from receiving a committee vote.

As an alternative, advisers rallied around a measure offered by Rep. Maxine Waters, D-Calif., that would authorize the Securities and Exchange Commission to fund adviser exams through a user-fee assessed on advisers.

Both bills sought to increase the number of annual adviser exams, with Ms. Waters' bill keeping oversight under the aegis of the SEC, the advisers' preferred approach.

This year, Ms. Waters will be the first out of the gate by re-introducing her user fee legislation – possibly within the next week or so.

The timing makes a difference. Instead of an SRO bill being the foundation for the debate, Ms. Waters' bill will be.

“[The SRO] bill is dead,” Ms. Waters said in an interview earlier this week. “That does not determine anything about our bill. We're going to introduce it anyway. I consider [the user-fee bill] one of the important and meaningful bills that I introduce.”

That could put the Financial Industry Regulatory Authority Inc., which was the leading proponent of the SRO bill last year and covets the role of adviser regulator, in a different position – following instead of leading the action.

Mr. Bachus has stepped down as chairman of the House financial committee, and the new chairman, Rep. Jeb Hensarling, R-Tx., has shown no interest in SRO legislation so far. On the Senate side, neither Democrats nor Republicans have seen movement on the SRO issue.

Following a speech at a Consumer Federation of America event on Thursday in Washington, Finra chairman and chief executive Rick Ketchum reiterated that the agency is pulling back from its strong lobbying push for an SRO bill.

“We recognize reality – that Congress is likely to be focused on other things than an SRO for investment advisers this year,” Mr. Ketchum said. “We'll move on from that standpoint.”

But Finra will continue to highlight what it calls an investor protection problem. Finra and other SRO supporters argue that an SRO is required to augment the SEC's oversight of advisers. A 2011 SEC study showed that the agency has the resources to examine annually about 8% of registered advisers, who numbered about 12,000 at the time.

“The SEC's ability to examine advisers remains inadequate,” Mr. Ketchum said in his CFA speech. “If investors are to be protected, investment advisers need to be examined regularly and vigorously. It's as simple as that, and it is not happening under our current system.”

Without an SRO bill in the mix – so far – Mr. Ketchum seems open to other ideas, including, possibly, boosting SEC resources through user fees to do the job.

“Either there needs to be something that gets [the SEC] more resources or there needs to be some effort to identify a way that there are boots on the ground doing exams – whether that is an SRO or otherwise,” Mr. Ketchum said. “The key thing is this [lack of oversight] can't be allowed to happen.”

Although Ms. Waters' bill is in the pole position, it won't necessarily win the race this year. For one thing, House rules allow the majority Republicans – and their opposition to increasing SEC funding – to dominate.

“We're hopeful that we can convince some Republicans that this makes good sense,” said Ms. Waters, who is the top-ranking Democrat on the House Financial Services Committee.

For that effort, she'll need boots on the ground herself. Those will come in the form of adviser advocacy groups, such as the Financial Planning Coalition, which is comprised of the Certified Financial Planner Board of Standards Inc., the Financial Planning Association and the National Association of Personal Financial Advisors.

“We're in the process of educating lawmakers – both on the House Financial Services Committee and the Senate Banking Committee – that there is an investor-protection problem that needs to be addressed and the user-fee bill is the best solution,” said Marilyn Mohrman-Gillis, CFP Board managing director for public policy and communications.

The FPC will need to work hard. With its powerful lobbying muscle, Finra could quickly switch from defense to offense.


What do you think?

View comments

Upcoming event

Sep 24


Diversity & Inclusion Awards

Attend an event celebrating diversity and inclusion as well as recognizing those who are leading the financial services profession in this important endeavor. Join InvestmentNews, as we strive to raise awareness, educate and inspire an... Learn more

Most watched


How the 2020 elections could impact ESG investing

Joseph Keefe, president of Impax Asset Management, on the elections and how advisers can build a bridge to the next generation of clients with ESG investing.


How advisers can be a gamechanger for women investors

Why women defer to men when it comes to finances and how advisers can combat this phenomenon and make a difference for female investors, according to Heather Ettinger, founder and CEO Luma Wealth Advisors.

Latest news & opinion

Schorsch, AR Capital to pay $60 million to settle SEC charges

The former REIT czar and his firm wrongfully obtained millions linked to REIT mergers.

CFP Board postpones enforcement of its revised fiduciary standard

Board's new Code of Ethics and Standards to be enforced next June, in line with the SEC's Reg BI

Charles Schwab reportedly in talks to buy USAA brokerage, wealth management business

The deal would net Schwab roughly $100 billion in new assets.

Advisers scramble to help retirees navigate looming Fed rate cut

The Fed's first interest-rate cut in a decade has advisers warning against chasing the bait of risk over safety.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print