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Regulation and Compliance > Federal Regulation > SEC

Poll Results: As SEC’s Schapiro Steps Down, Advisors Speak Up

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Friday, Dec. 14, marks Mary Schapiro’s last day as SEC chairman. Since taking on the high-profile position in February 2009, Schapiro has faced many challenges and some criticism from all sides of the political spectrum, though the consensus appears to be that she, in the words of Investment Adviser Association Executive Director David Tittsworth, “stabilized an agency that was being heavily criticized” when she joined the SEC.

“Remember,” says Tittsworth, that in early 2009, “many people were talking about literally doing away with the SEC.”

Elisse Walter has been named by President Barack Obama to replace Schapiro, at least on an interim basis, but AdvisorOne thought we should ask advisors who they believe should be SEC chairman. While we were at it, we also asked for your input on what the SEC’s priorities should be and to assess how well the current regulatory system is working. The survey was available online at AdvisorOne from Nov. 29 through Dec. 10, with about 60 respondents, the vast majority being advisors. Now, the numbers are in.

1. Who Should Be SEC Chairman?

Our survey provided respondents with the names of several people whose names have been floated as possible successors to Schapiro, though we also encouraged write-in votes. The biggest vote-getters were Sallie Krawcheck, the former Merrill Lynch chief, at 27% of the vote, followed by “an actual advisor,” at 17%, and Robert Khuzami, whom Schapiro brought in to direct the division of enforcement at the SEC, at 16% of all votes. While many names were written in, none approached the support given to Krawcheck, Khuzami, or that mythical advisor; the most prominent names mentioned were JP Morgan CEO Jamie Dimon of Citigroup, CFTC Chairman Gary Gensler, two Ron’s–Paul and Rhoades–and Stark & Stark securities attorney Tom Giachetti.

Tittsworth, who has spent several decades observing and participating in the Washington scene on both Capitol Hill and as an advocate, suggested that when it comes to an actual successor that we should “discount 99% of the rumors out there; figuring out what’s actually going on is basically impossible.” However, he did suggest that the best kind of person to head the SEC should have both an “outside game” and an “inside game.”

The outside skills, he said, would include dealing with Congress, the White House and “the whole set of regulated entities” such as broker-dealers, SROs and RIAs. “On the outside game, as SEC chairman you need a pretty thick skin–you’ll be subject to criticism no matter what,” Tittsworth said. Any new chairman, he suggested, will still face criticism in what is “still a highly charged political environment.” 

However, Tittsworth said, “I don’t think you should underestimate the inside skill set.” Those skills include managing SEC employees, “hiring the right people and trying to implement the changes you want to see; unless you have the staff behind you it’s difficult to get your agenda.” Back in 2009 when there was that talk about eliminating the SEC, “it couldn’t have been a morale booster for the 2,000 to 3,000 people working there; she stabilized an industry that was being heavily criticized.” Moreover, he says Schapiro had a “highly functioning senior staff that had the confidence of people who reported to that staff.”

Tittsworth said he would “give Chairman Schapiro high marks on both the inside and outside game.” He also points out that Schapiro brought into the agency many people who were experienced in the securities business but hadn’t previously served in government, such as Khuzami, “who had been a prosecuting attorney in New York,” Norm Champ, head of the Investment Management Division, who had worked at a hedge fund, Carlo Di Florio, who heads the SEC’s OCIE division, and a new general counsel.

2. What Should Be the SEC’s Top Priority?

The majority of our respondents, 56%, identified themselves as either SEC-registered investment advisors or state-registered RIAs, though 33% chose “other,” which upon further drilldown included attorneys, employees of RIA custody firms and at least one person who self-identified as “an SEC employee.”

When these respondents were asked what should be the agency’s top priority, 43% chose “improving training/knowledge of SEC examiners.” A distant second, at 24%, was “imposing a fiduciary duty on all advice givers,” and third, at 13%, was “getting better overall funding for the SEC.”

The top answer is likely not surprising to any RIA; a constant complaint, in public and in private, of many RIAs is that it’s a crapshoot when it comes to examiners: some are experienced and knowledgeable about the RIA model, while other examiners are callow inspectors who clearly know next to nothing about the businesses they are examining.

On the problem of less-than-optimal examiners, Tittsworth of IAA says “we’ve certainly heard the same complaint as well,” but believes that Carlo Di Florio, the aforementioned Schapiro appointment who heads the SEC’s Office of Compliance, Inspections and Examinations (OCIE) “ would say they’re trying to improve that situation.” Tittsworth, who doesn’t hesitate to criticize the SEC from time to time, says he “applauds” OCIE for bringing in more experienced “securities people, trader and private fund people” into the SEC.

3. About the Current Regulatory Environment

When asked to provide an assessment of the current regulatory system, as overseen by the SEC and FINRA, survey respondents gave poor marks, with significant majorities criticizing regulators for failing to “protect the integrity of the markets” (one of the SEC’s three formal charters), at 70%, and 68% saying they fail to “provide a level playing field for all advisors.” Another 68% of respondents said the SEC and FINRA are not “protecting the U.S. financial system from another 2008 crisis.”

4. What Qualities Should the Next SEC Chairman Possess?
Tittsworth was likely channeling the opinions of many advisors (not surprising, since the IAA represents mostly larger registered investment advisory firms) when he said his preference for any SEC chairman would be “somebody with experience in the securities industry” and more “specifically in the investment advisory industry.”

With the demurral that he is “one of hundreds of advocates out there,” Tittsworth said that the “somebody” should have “actual experience doing the types of activities the SEC regulates.” He would rather see that type of person rather than “an academic” or someone from a law firm “who has never stepped foot in a broker-dealer’s office or an RIA firm.” That sentiment that would likely be shared by many in the industry, Tittsworth speculated, “is why Sallie Krawcheck got so many votes” in our survey.

Tittsworth has one other point to make as to the type of person who would become SEC chairman or take a senior staff position at the agency. “People take these jobs because they believe in public service,” pointing out that the chairman’s position pays “maybe $150,000” annually, while an SEC “senior staff [salary] is capped around $230,000.”

After all, he points out, “FINRA executives are multiples” of those salaries. Why else, he wonders, would anyone “take on these serious responsibilities, where people are taking shots at you? Why else would you take this job unless you believed in public service?” The “vast majority” of SEC staffers, he believes, are such dedicated public servants, with “a high level of competence.”



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