January 14, 2014

More Advisor Exams? Not Under This SEC Budget, Advocates Say

Increase of $29 million won't be enough to put more SEC boots on the ground, they say, renewing calls for user fees

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The just-released 2014 Omnibus Appropriations bill from the House Appropriations Committee fails to give the Securities and Exchange Commission the additional resources it needs to perform “critically important” investor protection functions, namely boosting the number of advisor exams, advocates say.

The 1,582-page proposal, which was released late Monday and is expected to come up for a vote Wednesday, includes $1.35 billion for the SEC, which is $29 million more than the agency’s fiscal year 2013 budget but $324 million below the Obama administration’s budget request. That request included funding that would have allowed the SEC’s Office of Compliance Inspections and Examinations to hire 250 additional advisor examiners.

Neil Simon, vice president for government relations at the Investment Adviser Association in Washington, says that IAA is “disappointed” that the budget allotted to the SEC falls short in providing the agency with the additional resources to add staff “so that it can increase its oversight of investment advisory firms."

SEC spokesman John Nester told ThinkAdvisor that the proposed funding level "falls short of what we need to fulfill our responsibilities to investors and our markets. It will limit our ability to bolster our enforcement and examinations programs, implement our new duties regarding derivatives, private fund advisors and municipal advisors, and invest in critical technology for market oversight and law enforcement."

IAA’s Simon said the shortfall in funding “makes it all the more important that Congress allow the SEC to supplement its resources through user fees, as provided by the Investment Adviser Examination Improvement Act,” H.R. 1627, which is sponsored by Reps. Maxine Waters, D-Calif and John Delaney, D-Md.

IAA along with AARP, the Consumer Federation of America, the Certified Financial Planner Board of Standards, the Financial Planning Association, the National Association of Personal Financial Advisors and the North American Securities Administrators Association released a joint statement after the appropriations bill was released encouraging Congress to take up H.R. 1627 "to ensure effective oversight of the investment advisory profession by the SEC.”

Waters said in a statement that the bill "fails" to give Wall Street cops like the SEC adequate funding "to ensure that the financial services industry adheres to the rules of the road." The bill, she said, "provides the already underfunded SEC with level funding, but attaches onerous strings to those resources."

Indeed, Duane Thompson, senior policy analyst at fi360, agrees that the SEC’s budget under the appropriations bill “will mean very few new hires for the agency’s examination program of investment advisors.” In particular, Thompson notes, “the House bill would strip $44 million of the new budget from other operation areas to increase resources for economic analysis of future SEC rulemakings.” While “that doesn’t mean the SEC will not try and leverage its resources to ramp up the inspection cycle of SEC-registered advisors … at the end of the day the SEC will need more boots on the ground to increase its inspection cycle.”

Barbara Roper, director of investor protection at CFA, said that "While the lack of [SEC] resources has hampered many essential functions at the agency, one of the more glaring shortfalls is in funding for the investment advisor oversight program. Failing to fund this program properly has a direct impact on investors, putting more investors at real risk of losing their retirement nest egg."

The SEC’s examination priority list for 2014, released Jan. 9, listed never-examined advisors as a top priority for the agency.

In unveiling the bill, House Appropriations Committee Chairman Hal Rogers said that the legislation “is a compromise” worked out with his colleagues in the Senate, but that “it reflects Republican priorities and holds the line on spending in many critical areas.”

Rogers added that the bill — which totals $21.8 billion in discretionary funding, $603 million above the fiscal year 2013 enacted level — “limits funding for the IRS and regulatory agencies while targeting funds to programs that will help small businesses and our economy thrive.” The bill also includes no new funding for the Affordable Care Act, or Obamacare.

The bill maintains the majority of the sequestration funding cuts for the IRS, providing a total of $11.3 billion — $526 million below the fiscal 2013 enacted level.

The Department of Labor is allotted $12 billion under the legislation, a cut of $449 million below the fiscal 2013 enacted level.

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Check out IRS Scandals Fueled by Lack of Funds, Taxpayer Advocate Says on ThinkAdvisor.

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