White House wants closer scrutiny of investment advisers

While President Barack Obama's $3.8 trillion budget proposal for 2013 goes hard on the wealthy, it could also be tough on those who advise them. In his proposal, Mr. Obama is seeking a $245 million increase in the Securities and Exchange Commission's budget for fiscal year 2013. The increase would bump the SEC's budget to $1.566 billion, from the current $1.321 billion. Of note to advisers, the additional funding would support an expansion of the Office of Compliance Inspections and Examinations. “In 2013, OCIE plans to hire additional examiners to focus on investment advisers and investment companies as part of a multiyear effort to increase coverage of the advisory industry, allowing OCIE to more effectively assess the risk of, monitor and examine market participants to focus on the areas in greatest need of attention,” the White House budget states. The SEC also intends to increase the number of examiners focused on private-equity and hedge funds, according to the budget. Private funds with more than $150 million in assets under management have to register with the SEC beginning this year, a mandate of the Dodd-Frank financial reform law. The Division of Enforcement plans to upgrade its ability to track and handle tips, complaints and referrals, while developing a “comprehensive case management system,” according to the White House budget. Meanwhile, the Division of Investment Management “plans to focus on exchange-traded funds and money market funds, which have unique attributes that present different and often more challenging regulatory concerns than conventional funds,” the budget states. While Democrats are generally sympathetic toward the SEC and its greatly expanded workload in the wake of Dodd-Frank, Republicans are skeptical about the agency's performance. They routinely criticize it, for instance, for failing to stop Bernie Madoff's Ponzi scheme before he bilked investors of some $50 billion. Even though there are partisan differences over the SEC, the agency achieved a $136 million funding increase in its fiscal 2012 budget. That was $86 million short of the Obama administration's request — but more than many observers were expecting.