Key House Republicans bash SEC exam user fee idea

Legislation that would have RIAs pay for exams all but dead

Dec 3, 2014 @ 1:36 pm

By Mark Schoeff Jr.

Renewed opposition by two leading House Republicans to the idea of letting the Securities and Exchange Commission charge investment advisers for their examinations signals long odds for user-fee legislation next year.

House Financial Services Chairman Jeb Hensarling, R-Texas, and Rep. Scott Garrett, R-N.J., chairman of the panel's capital markets subcommittee, told SEC Chairman Mary Jo White in a Nov. 24 letter that user fees would “impose significant new costs” on advisory firms, would be “passed along to their customers” and would have a “disproportionate impact on small- and midsize registered investment advisers.”

The lawmakers said the agency should “reallocate existing SEC resources” to increase adviser exams.

“The SEC's willingness to solve its own problems rather than seek additional appropriations or the authority to impose new fees would be a welcome development,” Mr. Hensarling and Mr. Garrett wrote.

The lawmakers' reiteration of their opposition highlights the steep climb a user-fee bill authored by Rep. Maxine Waters, D-Calif., ranking member of the House Financial Services Committee, would have next year, if she reintroduces it in the new Congress next year. Her current measure secured only one GOP cosponsor.

The situation has one adviser advocate throwing in the towel on the user-fee idea.

“I don't see a clear path forward on that one, regardless of merit,” Skip Schweiss, managing director of adviser advocacy at TD Ameritrade Institutional, wrote in an email. “So I think it's time to move on to other, more politically viable options.”

The Investment Adviser Association, which sent the lawmakers' letter to its membership on Tuesday, still backs the user-fee approach. But Neil Simon, IAA vice president for government relations, acknowledged that a bill will be a tough sell next year in a House that will have a strengthened Republican majority.

“It certainly suggests that we have a heavy lift in the House,” Mr. Simon said. “The Senate is an entirely different chamber.”

The Senate will have a Republican majority next year as well, following a strong GOP showing in last month's elections. It's unclear whether the leaders of the Senate Banking Committee will have the appetite to push a user-fee bill that is strongly opposed by Mr. Hensarling and Mr. Garrett.

Their letter comes as Congress wrestles with the federal budget during the lame-duck session of Congress. Legislators must approve a budget — including an appropriation for the SEC — for the current fiscal year to keep the government open after Dec. 11.

A so-called omnibus budget or a continuing resolution would likely keep SEC funding near its current level, hundreds of millions of dollars below what it says it needs to increase adviser exams substantially. In fiscal 2014, the agency examined 10% of the more than 11,000 registered investment advisers.

Mr. Hensarling and Mr. Garrett said the SEC should shift funding from private fund examinations and broker-dealer oversight to investment adviser monitoring. They also said the agency should consider authorizing a third-party examiner for advisers.

Although the IAA is skeptical of a third-party examiner, saying one should only be used to augment SEC exams rather than substitute for them, it does have some common ground with the lawmakers.

“We agree that the SEC should explore the reallocation of resources,” Mr. Simon said. “We disagree on the efficacy of user fees as a policy solution.”


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