The switching of advisors from SEC to state oversight under the Dodd-Frank Act is not “the final answer” to ensuring advisors are adequately examined, SEC Commissioner Elisse Walter told state securities regulators Tuesday.
While it’s been nearly a year since Dodd-Frank required that advisors with assets of between $25 million and $100 million under management switch to state oversight in an effort to ensure more advisors get examined, Walter said at the North American Securities Administrators Association’s annual public policy conference in Washington that “unless significant changes are made, the SEC cannot fulfill its examination mandate with respect to advisors.”
Despite the fact that the number of advisors examined by the SEC dropped after the switch, the former chairwoman said, by just over 8 percent, from 11,600 to 10,600, the “general complexity, and assets under management of the advisors for which [the SEC is] responsible actually increased by 22 percent, from $44 trillion to nearly $54 trillion.”
In the advisor exam area, she continued, “those challenges have been magnified by our new private fund adviser oversight responsibilities.” SEC staff, she said, estimates that, due to Dodd-Frank, the number of advisors to private funds registered with the commission will increase from 23 percent of all advisors to 38 percent.
Said Walter to state securities regulators: “We all must face the reality that, without future action to address our joint resource constraints in the advisory area, there simply are not enough examiners to go around.”
Such action, which she said needed to be “pursued now” by lawmakers, is one of the three solutions laid out in the SEC’s 2011 staff report to Congress, which called for the agency to either impose user fees to boost advisor exams, appoint a self-regulatory organization such as FINRA to oversee advisors, or provide a “substantial increase” to the SEC’s budget.
However, all three of those options require action by Congress, and industry officials, including FINRA CEO Richard Ketchum, say there’s little to no support in Congress to pursue user fees or SRO legislation, at least in the short term. As Ketchum told AdvisorOne in a mid-April email exchange: “Given the lack of consensus on the Hill” regarding an SRO for advisors, FINRA “is not pursuing legislation in either the House or Senate at this time.”
While Ketchum says he would support allowing the SEC to assess user fees to boost advisor exams “if it becomes an achievable solution,” he told AdvisorOne that he didn’t see a consensus among lawmakers to move forward with that option, either.