The Securities and Exchange Commission should revisit the idea of using third-party audits to boost the number of advisor exams in lieu of assessing user fees or appointing a self-regulatory organization to conduct such exams, says fi360.
In a March 10 comment letter to the SEC on the agency’s recently released five-year strategic plan, Duane Thompson, senior policy analyst at fi360, and Carlos Panksep, managing director of fi360’s Centre for Fiduciary Excellence (CEFEX), told the SEC that it should consider “alternative” approaches to hiking its advisor exam rate, as attempts to push user fees as well as a self-regulatory organization have stalled.
“It is obvious that the SEC is challenged by the continued robust growth in the number of investment advisor registrants amid a time when Congress is faced with a budget sequester and other fiscal restraints,” Thompson and Panksep told SEC Chairwoman Mary Jo White, as well as the four commissioners and top officials. “Combined with the current fiscal austerity climate and legislative gridlock in Washington, the Commission cannot be assured of a sustainable financial commitment to its National Examination Program without considering other alternatives.”
Fi360 shares other fiduciary advocates’ support for the SEC putting brokers under a fiduciary mandate and is also opposed to the Financial Industry Regulatory Authority stepping in under an SRO model to examine advisors. Legislation to appoint FINRA as an SRO failed under former House Financial Services Committee Chairman Spencer Bachus, R-Ala.
The Investment Adviser Examination Improvement Act, a bill introduced by Rep. Maxine Waters, D-Calif., to allow the SEC to collect user fees to fund advisor exams has been languishing in the House with little support. But Neil Simon, chief lobbyist for the Investment Adviser Association in Washington, said in early March that IAA and other planning groups are “working hard” to get a bipartisan user fees bill introduced in the Senate that mirrors the Waters bill, H.R. 1627. FINRA, Simon said, is still actively “laying the foundation for a future lobbying efforts” to ensure it becomes the SRO for advisors.
The SEC is also unlikely to get the budget boost set out in President Barack Obama’s recently released 2015 budget.
While the use of third-party audits to boost advisor exams was not one of the three options set out in Section 914 of Dodd-Frank, both Thompson and Panksep note that the SEC sought comments in 2003 on the topic and in 2009, former SEC Chairwoman Mary Schapiro raised the issue again in testimony before Congress.