Following the Securities and Exchange Commission’s release of the much-anticipated “Study on Enhancing Investment Advisor Examinations,” Investment Adviser Association Executive Director David Tittsworth wrote for AdvisorOne that while the number of SEC-registered advisors will temporarily fall, the number of SEC examiners will not keep pace with continued growth. As a remedy to the lack of resources, the SEC’s report suggests establishing one or more self-regulatory organizations to examine advisors. Alternatively, advisors could pay a fee to fund their examinations by the Office of Compliance, Inspections and Examinations (OCIE), or authorize FINRA to examine dual registrants for compliance with the Advisers Act.
“Whatever happens, I expect FINRA and its allies to continue to push to extend its jurisdiction to some or all investment advisors. SEC Commissioner Elisse Walter, a former FINRA executive, filed a separate letter expressing her disappointment that the SRO option was not cited more favorably in the report. SEC Chairman Mary Schapiro, who recused herself from the SEC report due to her former employment as head of FINRA, is likely to participate in further discussions when her two-year recusal period ends,” Tittsworth wrote.
The SEC, like any organization, likes to protect its own turf. OCIE does not desire to cut staff should it lose oversight of investment advisors. However, Congress is unlikely to be so receptive.
One possible outcome is that OCIE retains direct oversight over investment companies and their investment advisors, as well as indirect oversight over BDs and all RIAs—while shifting primary oversight for SEC-registered RIAs to FINRA. OCIE still would have its hands full with SRO oversight, private equity funds, credit rating agencies, and investment companies and their advisors, and this would permit OCIE to retain its staff.
FINRA’s lobbying prowess (and that of its members) should never be underestimated. As the old saying goes, “follow the money.”
While the ordering of the options was a surprise, all three options exist—and even more.