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Regulation and Compliance > Federal Regulation > SEC

GOP Blasts User Fees Plan, Tells SEC to Boost Exams Now

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Two top Republicans on the House Financial Services Committee told Securities and Exchange Commission Chairwoman Mary Jo White in a recent letter to reallocate resources to “immediately” boost the number of investment advisor exams because allowing the SEC to collect user fees from advisors to achieve this same goal is too costly.

In their Nov. 24 letter to White, Committee Chairman Jeb Hensarling, R-Texas, and Rep. Scott Garrett, R-N.J., chairman of the committee’s Capital Markets Subcommittee, said that user fees “will impose significant new costs” on RIAs and that those “added costs will be passed along to their customers in the form of higher advisory fees.”

User fees, the two lawmakers say—who both will resume their current positions in the new Congress—could also have a “disproportionate impact on small and mid-sized” RIAs, making it more difficult to compete with larger firms.

“Increasing costs for small businesses and retail investors and curtailing access to investment advice will directly undermine the SEC’s statutory mission to protect investors, maintain fair, orderly, and efficient markets and facilitate capital formation,” the two lawmakers said.

What’s more, the two argue that authorizing the SEC to collect user fees would require the agency to hire “hundreds of additional examiners and enforcement lawyers, with six-figure salaries,” which will also increase costs.

The solution, Hensarling and Garrett write, is for the SEC to reallocate existing agency resources “to immediately increase the amount” of RIA exams. The two cite their Sept. 2013 request that the SEC redirect resources its using to protect “millionaire and billionaire” investors in private funds and to shift “more responsibility” for broker-dealer exams to the Financial Industry Regulatory Authority.

The two lawmakers also suggest that the agency turn to “more creative alternatives,” such as third-party audits, to boost the number of investment advisor exams, as recommended recently by SEC Commissioner Daniel Gallagher.

David Tittsworth, the former president and CEO of the Investment Adviser Association in Washington, agreed with Hensarling and Garrett in June when he told Gallagher, White and the other SEC Commissioners, that the SEC should reallocate existing resources in order to examine more advisors.

IAA urged the agency in June to “consider reallocating its existing resources” in order to boost advisor oversight, “which the agency could accomplish without additional legislation or rulemaking.” IAA said at the time that it was “concerned … about the potential disadvantages of third-party examinations as compared with SEC examinations.”

Garrett and Hensarling told White to tell them in writing by Dec. 5 how the agency plans to reallocate resources in order to conduct more advisor exams, provide a “timeline” for the SEC to consider either a “voluntary program, an order or a formal rule to permit third-parties to audit” RIAs, and provide the average of investment advisor exams per SEC examiner across all SEC offices and divisions for FY 2013 and FY 2014.

Under the upcoming GOP-controlled Congress, the IAA will be looking to gain backers of bipartisan user-fee legislation, Karen Barr, IAA’s president and CEO, told ThinkAdvisor in early November.

The “Republican leadership will be looking to show that they can get things done and improve operation of the federal government, and this presents us with an opportunity to gain Republican support for [a] user-fee bill in both chambers,” Barr says.

The House user-fees bill, H.R. 1627, the Investment Adviser Examination Improvement Act of 2013, which was co-sponsored by Rep. Maxine Waters, D-Calif., currently has 25 co-sponsors, with Rep. Katherine Clark, D-Mass., being the most recent one to throw her support behind the bill on Sept. 15.

– Related on ThinkAdvisor: The SEC Is Broken


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