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March 10, 2011 at 09:19 AM
John Walsh, associate director of the Securities and Exchange Commission’s (SEC) Office of Compliance Inspections and Examinations (OCIE), warned compliance officers on Thursday “not to back off” on their compliance due diligence, as SEC exams of advisory firms post-Dodd-Frank will increase in the short-term.
While the study the SEC performed under Section 914 of Dodd-Frank, commonly referred to as the SRO study, which looked at enhancing advisor exams, determined that the securities regulator will lack the resources in “the long-term” to perform an adequate number of exams on advisors, Walsh said at the Investment Adviser Association’s (IAA) compliance conference on Thursday, that “for some period of time after Dodd-Frank” advisors can expect more exams. “This is an important takeaway because I worry that [compliance officers] will say the SEC is not coming.”
The SRO report issued by the SEC stated that as the number of advisors has grown, along with their assets under management, the agency’s examination staff has dwindled. Between Oct. 1, 2004, and Sept. 30, 2010, the number of registered investment advisors (RIAs) increased 38.5%, from 8,581 advisors to 11,888 advisors, the study said.
SEC staff projects that SEC-regulated RIAs will grow to 13,908 in 10 years (from 11,888 in 2010), however, this projection only counts the number of RIAs with $100 million or more in assets under management (AUM) that would be under SEC supervision, not those with $100 million or less that would have to switch to state supervision, as mandated under Dodd-Frank.
