More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
President Barack Obama’s fiscal 2014 budget, released Wednesday, allocates $1.674 billion for the Securities and Exchange Commission, a 27% increase, or $353 million, over the $1.321 billion provided by the continuing resolution (CR) the agency was operating under this year.
If approved, the agency would use the extra funds to add 676 staff positions, 325 of which would be used to hire additional examiners; 250 of those examiners would be devoted solely to advisor exams.
In its FY 2014 budget request, the SEC says that during FY 2012 it examined only about 8% of registered advisors, and more than 40% of advisors have never been examined. Additionally, the agency says the number of registered advisors has increased by more than 40% over the last decade, while the assets under management by these advisors have increased more than twofold, to almost $50 trillion.
The SEC says that its “current level of resources is not sufficient to keep pace with the growing size and complexity of the securities markets and of the agency’s broad responsibilities.” Currently, the SEC said it oversees approximately 35,000 entities, including about 11,000 investment advisors, 9,700 mutual funds and exchange-traded funds, and 4,600 broker-dealers with more than 160,000 branch offices.
Therefore, the agency said under the FY 2014 request, one of its “top priorities is to hire 250 additional examiners to increase the percentage of advisers examined each year, the rate of first-time examinations, and the examination coverage of investment advisers and newly registered private fund advisers.”
The securities industry “continues to grow at a rapid pace,” the SEC said. “For example, during the past decade, trading volume in the equity markets has more than doubled, as have assets under management by investment advisers, with these trends likely to continue for the foreseeable future.”
Read SRO Is Key to Boosting Advisor Exams: Former SEC Chief Pitt on AdvisorOne.