TD Ameritrade Institutional, the large custodian for RIAs, has released a statement regarding the Securities and Exchange Commission’s (SEC’s) Study on Enhancing Investment Adviser Examinations. This study is frequently referred to as the SEC’s SRO Study.
“TD Ameritrade Institutional is committed to advocating on behalf of independent Registered Investment Advisors (RIAs). Based on the input advisors have given us, we support retaining the Securities and Exchange Commission (SEC) as the primary regulator for RIAs. We believe that a reasonable user fee will help ensure that the SEC has the funding it needs to continue its mission of protecting investors and overseeing the RIA industry,” said an email from a TD Ameritrade Institutional spokesperson.
The SEC has had a serious lack of resources because the fee revenue it receives goes to the Treasury, and Congress provides a yearly appropriation that is a fraction of those revenues. Some years, Congress withholds hundreds of millions of dollars in fee revenue that the SEC brings in. This strains SEC’s budget and makes routine examinations of RIAs relatively infrequent.
The SEC has campaigned for self-funding, which would allow it to keep the revenues it brings in through fees, but there is an important political aspect to this funding tug-of-war. Sources in off-the-record meetings have told AdvisorOne that Congress is reluctant to allow SEC self-funding because that could result in more oversight for financial services firms, which are a very large source of campaign funding for Senators and Representatives. Congressional control of the SEC’s budget is one way to politically control how closely financial services firms are regulated.
Alternatives for RIA Oversight
The SEC’s SRO Study discusses resource issues and alternatives for better oversight of RIAs. The study points out, “At the rate that registered investment advisers were examined in 2010, the average registered adviser could expect to be examined less than once every 11 years, compared to approximately once every six years in 2004.”
To combat this, the SEC is requiring RIAs with $100 million or less to register with states instead of with the SEC, and the Commission conducted the study, as required in Dodd-Frank legislation, to examine alternatives for RIA oversight.
Three alternatives were recommended in the SEC’s SRO Study:
(1) Authorize the Commission to impose user fees on SEC-registered investment advisers to fund their examinations by OCIE;
(2) Authorize one or more SROs to examine, subject to SEC oversight, all SEC registered investment advisers; or
(3) Authorize FINRA to examine dual registrants for compliance with the Advisers Act
“We will continue to help inform the discussions occurring in Congress and the SEC around this important issue, and we encourage advisors to do the same,” TD Ameritrade’s email stated.
See additional articles on AdvisorOne.com for more on the SEC SRO Study: