Industry trade groups remain steadfast in their bid to secure more backers of a bipartisan user-fees bill despite two top GOP lawmakers’ recent directive to SEC Chairwoman Mary Jo White that the agency instead reallocate resources to “immediately” boost the number of advisor exams.
House Financial Services Committee Chairman Jeb Hensarling, R-Texas, and Rep. Scott Garrett, R-N.J., chairman of the committee’s Capital Markets Subcommittee, told White in a Nov. 24 letter that user fees “will impose significant new costs” on registered investment advisors and that those “added costs will be passed along to their customers in the form of higher advisory fees.”
User fees, said the two lawmakers—both of whom will continue their leadership roles 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 told White.
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What’s more, the two argued 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 wrote in their letter, is for the SEC to reallocate existing agency resources “to immediately increase the amount” of RIA exams. They cite their September 2013 request that the SEC redirect resources the agency is using to protect “millionaire and billionaire” investors in private funds and urged the agency to shift “more responsibility” for broker-dealer exams to the Financial Industry Regulatory Authority.
The two lawmakers also suggest that the agency turn to what they term “more creative alternatives,” such as third-party audits, to boost the number of advisor exams, as recommended recently by SEC Commissioner Daniel Gallagher.
Advisor Groups Fight Back
The Financial Planning Coalition—comprising the Financial Planning Association (FPA), the National Association of Personal Financial Advisors (NAPFA) and the Certified Financial Planner Board of Standards (CFP Board)—said in a statement to me that “we strongly disagree that merely asking the SEC to reallocate its stretched and inadequate resources or outsourcing examinations to third parties is the solution.”
The SEC did, however, get a funding boost in the omnibus spending bill that lawmakers agreed to in mid-December. The omnibus bill allocated $1.5 billion to the SEC, which is $150 million more than the agency got in FY 2014. An SEC spokesperson said that the agency could use those additional funds to help increase its exam coverage.
Neil Simon, VP of government relations for the Investment Adviser Association in Washington, said Hensarling and Garrett’s views regarding user fees aren’t “necessarily shared in the Senate,” and that IAA remains optimistic about “getting movement on [user fee] legislation” in the new Congress.