It isn't often that a piece of legislation that could potentially raise costs to investors is a good idea, but in the case of the bill drafted by Rep. Maxine Waters that would charge advisers a user fee to fund more regulatory examinations, it is the lesser of two evils.
The alternative that has been floated is a bill that would establish a new self-regulatory organization to oversee advisers. That legislation failed in last year's Congress.
The possible unintended consequences of this alternative far outweigh the concerns that critics of Ms. Waters' bill have raised.
On Dec. 4, seven interest groups that represent both advisers and consumers sent a letter to every member of Congress urging them to back her measure, which would provide funding to the Securities and Exchange Commission to increase the number of registered investment advisers it examines every year. The SEC checks out only about 10% of the 11,000 RIAs under its purview.
The letter was signed by AARP, the Certified Financial Planner Board of Standards Inc., the Consumer Federation of America, the Financial Planning Association, the Investment Adviser Association, the National Association of Personal Financial Advisors and the North American Securities Administrators Association Inc.
To be sure, critics of the bill, such as Adam Kanzer and Darcy Bradbury, rightly point out two key risks of the California Democrat's bill: Any new fee might simply roll down to investors, and more SEC exams might not take place after all.
Mr. Kanzer, managing director and general counsel of Domini Social Investments, and Ms. Bradbury, managing director and director of external affairs at D.E. Shaw & Co., are members of the SEC's investor advisory panel.
INVESTOR PROTECTION
The goal here is to bolster investor protection — which should be a top adviser priority anyway — and so the bill ought to move along.
If the entire House of Representatives — and Senate, if a companion bill gets drafted — vote it down, regulators, together with the industry, will have to find a different way to tackle the issue of increasing the number of adviser exams. But it shouldn't die in committee or before it even reaches that stage.
As Craig Goettsch, director of investor education and consumer outreach in the Iowa Insurance Division said last month: “This is a ticking time bomb if we don't address it.”
