SRO Hearing in the House

And further added that, “That’s not likely to change, so it just makes sense for our dually registered members to undergo broker-dealer and investment adviser examinations at the same time, by the same regulator.”

“Increasing the rate of SEC examinations would effectively pile another burdensome layer of regulation on many NAIFA members, who are already among the most comprehensively regulated individuals in the financial services industry,” Curry said.

However, the FPC said in a prepared statement of opposition that the proposed legislation “would create a new regulatory structure that would lead to fewer investor choices for financial advice and impose a significant regulatory burden and higher costs on small advisory firms.”

The statement added that, “While the Coalition agrees that more frequent examinations of investment advisers by the SEC are needed,” the proposed legislation “is the wrong solution for this problem,” noting that should it become law the broker-dealer governed FINRA – which has no experience overseeing investment advisers – would most likely become the SRO.”

In his testimony, Morgan, the Texas securities regulator, said NASAA’s position has consistently been that “the regulation of investment advisers should continue to be the responsibility of state and federal governments and that these regulators must be given sufficient resources to carry out this mission.”

“The problems that exist with the SEC’s oversight of federally registered investment advisers have been characterized as a “regulatory gap,” Morgan said.

“NASAA recognizes these problems place investors at risk, and agrees that Congress should act to address them,” Morgan said. He then added, “Crucially, however, no similar gap exists with respect to investment adviser regulation in Texas, nor in the overwhelming majority of states.”

“To the contrary: the Dodd-Frank Act placed great confidence in state investment adviser examination programs by increasing state oversight to those advisers with $100 million in assets under management, up from $25 million,” Morgan said. “This means that a significant number of investment advisers are switching from federal to state regulation.”

This switch, targeted for completion on June 28 of this year, is one of the largest regulatory events involving a coordinated effort by the states and the SEC, Morgan said.

“When the dust settles, approximately 2,500 investment advisers will have transferred their registrations from the SEC to one or more states,” Morgan said. He said that means that the states will be responsible for the oversight of approximately 17,000 investment adviser firms and the SEC will regulate roughly 10,000 investment adviser firms.

“States have been preparing for this switch for two years and look forward to accepting the increased regulatory oversight of mid-sized investment advisers,” Morgan said.

“This is our main focus. NASAA believes that Congress should focus its attention on improving deficiencies in the oversight of federally registered investment advisers, while allowing the states to continue to focus on our distinct responsibility for the oversight of state registered investment advisers,” Morgan said.