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October 03, 2011 at 02:17 PM
Just as I was assuming the NASAA presidency at our annual conference in Kansas last month, the question of investment adviser oversight took center stage at a congressional hearing 1,200 miles to the East.
Currently, the states are the sole regulators of investment advisors with less than $25 million in assets under management. By the middle of next year, this threshold will increase to $100 million, with the SEC overseeing IAs managing more than $100 million in assets. In the midst of this regulatory switch, some in Congress are considering inserting a self-regulatory organization for IAs into the mix.
In testimony before the House Capital Markets Subcommittee, my colleague, Pennsylvania Securities Commissioner Steve Irwin, outlined NASAA’s vigorous opposition to the creation of any self-regulatory organization for state-regulated investment advisors. And given our experience in working directly with various self-regulatory organizations, we have many issues that must be addressed and resolved before an SRO for SEC-registered investment advisors should even be considered.
Investment advisor regulation should continue to reside with state and federal governments. Government regulators bring to the table decades of unmatched experience. We see little benefit in constructing a new layer of bureaucracy with its incumbent expense.
If the goal is strengthening investor protection through improved oversight of SEC regulated investment advisors, then the fastest route there is to ensure that federal regulators have the resources they need.
House Financial Services Chairman Spencer Bachus, R-Ala., has offered an initial look at how an IA SRO might be constructed and
what its oversight role might be in the “discussion draft” of IA SRO legislation he released just days before the hearing.
This initial draft appears to be an over-reaching solution to enhancing the regulation of investment advisors by allowing industry to police itself.
It looks to us that the Chairman’s draft would nationalize the regulation of small- and mid-sized investment advisors. This would be a significant and costly mistake that does not benefit Main Street investors, nor promote small business interests.
