Creating a self-regulatory organization (SRO) to oversee investment advisors would cost at least twice as much as providing the Securities and Exchange Commission with adequate funds to examine advisors, a new economic analysis released Thursday by several advisory trade groups says.
The analysis, conducted by the Boston Consulting Group (BCG), comes a day before the House Appropriations Committee voted on a spending bill that allocates $1.3 billion for the SEC, which is $136 million more than last year’s level and $86 million less than the Obama Administration’s request.
The BCG study, commissioned by advisor trade groups and TD Ameritrade Institutional, found that bulking up the SEC’s exam program for advisors is projected to cost $240 million to $270 million per year, whereas allowing the Financial Industry Regulatory Authority to be an advisor SRO is projected to cost $550 million to $610 million per year. A newly created SRO for advisors is projected to cost even more—$610 million to $670 million per year—the BCG analysis found.
The study also found that even dual registrants (60%), which are advisors regulated by the SEC and FINRA, expressed a preference for SEC oversight over FINRA as an SRO.
What’s more, the analysis says, more than 80% of advisors polled said they would prefer to pay user fees to fund enhanced SEC exams. Eighty-one percent of advisors prefer an enhanced SEC exam model over FINRA as an SRO, while 75% of advisors said they would prefer a new SRO over FINRA even if it cost them more, the analysis states.
However, both the conclusions and the methodology of the Boston Consulting Group survey were criticized by groups including FINRA and the Financial Services Institute (see specific criticisms below).
The BCG “study makes the economic case that outsourcing investment advisor oversight to FINRA or a new SRO would cost too much and is strongly opposed by investment advisors,” said Kevin Keller, CEO of the Certified Financial Planner (CFP) Board of Standards, at a press conference announcing the study’s results. The CFP Board “firmly believes that the SEC should retain oversight of investment advisors and be given the tools to adequately do the job, including the option of imposing user fees.”
David Tittsworth (left), executive director of the Investment Adviser Association (IAA), added at the press conference that while “there is a compelling need to enhance advisor oversight, giving the job to FINRA would be the wrong choice for many reasons, including its lack of accountability, lack of transparency, weak track record, excessive costs, and its bias favoring the brokerage industry.” The BCG report, he said, “underscores the conclusion that the best and most efficient approach is to ensure that the SEC has enough examiners.”