But, “Unlike almost every other financial regulator, the SEC remains without a consistent funding stream,” SEC Commissioner Luis A. Aguilar said in a May 11 “Statement in Support of Extending a Fiduciary Duty to Broker-Dealers who Provide Investment Advice.” Though the SEC is set to collect an estimated $1.7 billion next year, according to its FY 2011 Congressional Justification, (Justification)–its budget request–it has gotten a fraction of the amount it collects in fees for the past several years. Congress appropriates a dollar amount for SEC each year, and the rest is spent by the federal government. The SEC requested just under $1.3 billion in the Justification for 2011.
In a speech in March at the IA Compliance Best Practices Summit 2010, “A Shared Responsibility: Preserving the Fiduciary Standard,” SEC Commissioner Luis A. Aguilar noted the increase in the number of investment advisors registered with the SEC, from: “6,650 registered advisers managing approximately $18 trillion in 1999, to nearly 11,500 registered advisers managing approximately $33 trillion as of January 2010.”
But, “between fiscal years (FY) 2005 and 2007, the SEC experienced three years of flat or declining budgets, losing 10 percent of its employees and severely hampering key areas such as the agency’s enforcement and examination programs,” according to the Justification. And although the number of RIAs is up by 32%, and there are 67% more broker-dealer branches since 2005, because of the years of budget cuts SEC staff is still under the FY 2005 level by about 1%.
The issue is not simply staff numbers keeping pace with increased numbers of entities that the SEC oversees–it is that the Commission cannot make multi-year budgets for technology and other improvements since the funding is only certain one year at a time.
Indeed, Aguilar said in a speech, “Protecting Investors by Requiring that Advice-Givers Stay True to the Fiduciary Framework,” in Chicago on April 29: “the single most transformational act that Congress could undertake is to allow the SEC to be self-funded. Unlike almost every other financial regulator, the SEC remains without a consistent funding stream. Self-funding would enable the SEC to set multi-year budgets and respond promptly to our dynamic capital markets, while also maintaining appropriate staffing. Self-funding would allow us to have the resources to keep up with the growth in the industry.”
Even doubling the SEC budget, as the House draft of financial reforms had proposed last spring would have helped, year-over-year, but not long term, if it continued to be a yearly Congressional appropriation. And ,that’s not what eneded up in the Dodd Frank Act.