Skip Schweiss, TD Ameritrade Institutional’s managing director of advisor advocacy and industry affairs, told ThinkAdvisor on Wednesday that he hopes the third-party audit rule is still being developed, and that the Securities and Exchange Commission reportedly shifting 100 examiners from the BD side to the RIA side “can only help balance the load between the two.”
Schweiss, who was at TD Ameritrade’s National LINC conference in Orlando, said, “It isn’t an increase in SEC resources; adding oversight to the RIA side will only detract oversight from the BD side.”
According to published reports, “the SEC says this shift [of examiners] – along with its FY2016 budget increase – will allow it to increase RIA exams by 40%, Schweiss notes, “which is great, until you realize that’s an increase from a 10% exam rate to a 14% exam rate. In other words, we still have a ways to go.”
The SEC also announced Wednesday that Jane Jarcho, national director of investment advisor exams, has been named deputy director of the agency’s Office of Compliance Inspections and Examinations.
Regarding the shift in examiners, David Tittsworth, counsel with Ropes & Gray and former president and CEO of the Investment Adviser Association, says that while it will “take some time to effectuate the shift from the BD inspection program, to train the examiners, and to have the program up and running,” such a shifting of examiners “should result in a significant increase in the frequency of IA examinations.”
Former SEC Chairman Harvey Pitt, who championed the third-party advisor audit concept during his time at the agency, told ThinkAdvisor on Wednesday that “given the SEC examination unit’s ever-increasing workload, there will never be enough people (or money to pay them) in-house to do all the things that everyone agrees need to be done.”
That being said, “utilizing third-party compliance ‘audits’ will enable the public to take some comfort from the fact that the largest financial services firms will be examined yearly, and the rest of those firms will be examined either every other year, or every three years,” said Pitt, who now heads Kalorama Partners in Washington. “That will be a dramatic improvement. I believe the SEC deserves a great deal of credit for bringing its compliance program into the 21st century, and beyond.”
Schweiss maintains that any third-party exam rule by the SEC must require that such exams “be focused and objective and consistent, to supplement the SEC exam process.”
Jarcho, who has headed OCIE’s advisor/investment company exam program since 2013, will continue in that role, overseeing approximately 600 lawyers, accountants and examiners responsible for inspections of U.S. registered investment advisors and investment companies.
Advisor and investment company exams increased more than 27% while Jarcho has been at the helm, with OCIE initiating targeted exams in the areas of cybersecurity, never before examined investment advisors and investment companies, alternative mutual funds, fixed income funds and retirement accounts.
Industry officials say they expect OCIE director Marc Wyatt to officially announce fairly soon that it plans to shift 100 examiners who conduct broker-dealer exams to advisor exams, but they question whether that alone will be enough to address the advisor exam shortfall.
David Grim, director of the agency’s Investment Management division, said in mid-December that IM and OCIE were still working on a new plan that would require advisors to secure a third-party exam.