Of the many complex regulatory questions being discussed in Washington, how to fund the SEC seems to fall lower on the priority list than many other issues. But should it? Other agencies and regulatory organizations are self-funded, including the FDIC, the Federal Reserve and the broker/dealer self-regulatory organization FINRA. In an environment in which a stronger SEC is necessary, the drawbacks to being funded by Congress instead of self-funded may become clearer.

First, the numbers: As SEC Commissioner Luis A. Aguilar mentioned in a June 29 meeting with The Committee for the Fiduciary Standard, (this editor is a member of that Committee) the Commission has about 3,600 staffers who oversee 12,000 public companies, 11,300 investment advisors, 5500 broker/dealers 600 transfer agents, 5,000 mutual funds managing $9 trillion, 10 self-regulatory organizations, the stock exchanges, the Municipal Securities Rulemaking Board (MSRB) and the Public Company Accounting Oversight Board (PCAOB).

Although the SEC is funded out of the transfer and registration fees from stock trades, and in recent years those fees have generated between $1.2 billion and $1.4 billion per year, the fees go right to the Treasury, not directly to the Commission. The SEC then has to go to Congress with an annual budget for its allotment. What’s wrong with this picture? For the past four years, the SEC’s Congressional allotment has hovered at about $900 million, leaving between $300 million and $500 million of the fees it earns outside of SEC hands.

But with re-regulation fever sweeping Washington and the debate over who will regulate investment advisors and broker/dealers if they all come under one umbrella, the question of whether the SEC should be self-funding seems to be bubbling up to the top of the priority list. Investment advisors who fear that FINRA could be called upon to regulate all who give financial advice may want to consider which entity they’d prefer regulating all advice givers–both brokers and investment advisors–SEC or FINRA. If it’s SEC that’s preferred, then a self-funding SEC may indeed be necessary.

Another reason self-funding could be considered a positive step for the SEC, is that as Commissioner Aguilar pointed out the SEC cannot do multi-year planning and budgeting if it has to go to Congress on a year-by-year basis for its funding.

SEC Chairman Mary L. Schapiro told the Financial Times in an article published on the FT. com Web site on August 6th, “SEC chief in call for funding shake-up,” that “now may well be the moment.”

That same day, Investment Advisor Association (IAA) Executive Director David Tittsworth endorsed Chairman Schapiro’s statement, saying that IAA has “strong support for SEC Chairman Mary Schapiro’s call for SEC self-funding.” Read the IAA statement.

Still, questions remain: could and would the SEC hire more sophisticated, seasoned examiners and enforcers with that extra money? If SEC got the entire $1.2 billion to $1.4 billion is that enough to do all that it needs to do or would it need to raise fees? Even with that extra money in a self-funded SEC, is it enough to do all that they need to do to rebuild the trust of the investing public?

Comments? Please send them to kmcbride@wealthmanagerweb.com. Kate McBride is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.