More On Legal & Compliancefrom The Advisor's Professional Library
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
Just days after SEC Commissioner Elisse Walter called on Congress to act immediately to fix advisor exams, Rep. Maxine Waters, D-Calif., ranking member of the House Financial Services Committee, introduced legislation Friday that would allow the SEC to collect user fees to fund advisor exams.
The Investment Adviser Examination Improvement Act of 2013 (H.R. 1627), Waters said in introducing the bill “answers a funding gap which has been largely responsible for the infrequency of investment adviser exams, and represents the simplest and most direct method for achieving the desired result: improved quality and quantity of these exams and another step towards restoration of public confidence in our markets.”
The previous version of the bill, the Investment Adviser Examination Improvement Act of 2012, died in committee.
As Walter told state securities regulators Tuesday, the switching of advisors from SEC to state oversight under the Dodd-Frank Act is not “the final answer” to ensuring advisors are adequately examined.
Walter added in her comments to reporters after her remarks at the North American Securities Administrators Association’s public policy conference that the inability to adequately examine advisors was “the most pointed deficiency” at the SEC.
While President Barack Obama’s recent budget request would allow the SEC to hire an additional 250 examiners specifically for advisors, Walter told reporters that number wouldn’t be enough to sufficiently boost the number of advisor exams—a paltry 8% of advisors gte examined each year.
Rep. John Delaney, D-Del., a member of the House Financial Services Committee and an original co-sponsor of the legislation, said that “investment advisors play a huge role in the financial lives of millions of Americans, and we should make sure that they’re acting properly. In a time of tight budgets, the Investment Adviser Examination Improvement Act strengthens consumer protection measures in a taxpayer friendly, cost-effective way that requires no appropriated funds.”
Industry trade groups and officials were quick to weigh in with their comments on Waters’ bill.
Ron Rhoades, assistant professor and chairman of the financial planning program at Alfred State College, told AdvisorOne that while Waters' bill is "welcome news," and the bill would help "correct" the SEC's underfunded status "in a manner that protects individual investors better while not burdening taxpayers," he maintains that the Financial Industry Regulatory Authority's efforts to gain oversight over advisors are far from over.
"Despite FINRA's assertions that it is not pursuing oversight of RIAs in either the House or Senate, [FINRA] continues to spend extraordinary amounts of money each year on lobbying members of Congress," Rhoades says. "It remains clear that broker-dealer firms are losing market share to RIA firms, and FINRA has budgetary pressures and an uncertain future as a result. I possess no doubt that FINRA will resume its efforts to oversee RIAs at some later time."
Rhoades said he urges "all RIAs to support Rep. Waters' bill by contacting their own representatives and stressing the bill's importance."
Heath Abshure, NASAA president and Arkansas securities commissioner, said in a statement that “state securities regulators strongly support Congressional efforts to improve the oversight of federally registered investment advisors by acting on a recommendation of the Dodd-Frank Act and establishing a dedicated funding mechanism to ensure that the SEC Office of Compliance, Inspections and Examination’s resources are aligned with its examination responsibilities.”
Revenue from the user fees, Abshure said, "contemplated by the Waters-Delaney bill would be available to the SEC only to fund additional examinations of investment advisors, and not to subsidize other functions of the commission. The proposed bill is highly cost-effective not only from the perspective of the government, but also from that of the investment advisor industry."
Waters noted that H.R. 1627 would also preserve the expanded role of state securities regulators provided under the Dodd-Frank Act, which directs the SEC to focus on large advisors—those with more than $100 million in assets under management.
The SEC, Tittsworth continued, “a government agency that is fully accountable to Congress and the public, has more than seven decades of experience dealing with the investment advisory profession. As such, it is in the best position to implement more frequent and effective investment adviser examinations.” Further, he said, “the legislation is crafted to provide for accountability and transparency by including reporting and auditing provisions to ensure that the fees generated are used only for their intended purpose and to demonstrate and measure improvements to the SEC’s examination program.”
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