State regulators like William Galvin in Massachusetts and Attorney General Eric T. Schneiderman of New York regularly make headlines for their oversight of broker-dealers and advisors and their actions against brokers who behave badly.
Meanwhile, California regulators have issued a brief report that shows the very limited level of reviews they are conducting.
In the fiscal year ended June 30, about 1% of the state’s roughly 24,430 investment advisor firms, broker-dealers and branch offices were examined.
The Department of Business Oversight conducted exams of 232 of the roughly 3,740 IA firms in the Golden State – or 6%.
But its review of the state’s 2,900 BD firms during the period covered only about 0.8% of them. Meanwhile, less than 0.1% of branch offices were examined.
The report shows the DBO is “way short of examining broker-dealers and only examines a minimal amount of investment advisors, based on the data,” said attorney Keith Bishop of Allen Matkins Leck Gamble Mallory & Natsis, in an interview.
On the other hand, “You can look at the data and say the glass is half full, since they are making progress,” explained Bishop, who was head of the state’s Department of Corporations in the mid-1990s.
A year earlier, the office examined only 0.3% of the state’s 24,720 licensed securities entities. Thus, the number of examined licensees rose from 72 to 269 — a roughly 375% increase.
“The bigger questions are: Is it cost effective for state to be doing more examinations, and how should it be doing them?” Bishop asked.
While cost effectiveness is “in the eye of the beholder,” more examinations “would be a benefit to investors,” according to DBO spokesman Tom Dresslar.
The regulatory office is “making progress,” Dresslar said in an interview, pointing to the fact that is has done 232 examinations in the first seven months of the current fiscal year, which puts it on track to top last year’s 269.
According the DBO, which is led by Commissioner Jan Lynn Owen, of its 269 exams, 10 cases were referred to its enforcement division for license revocation due to violations.
“The remaining 259 examinations identified various violations for which the licensees took corrective action to bring themselves into compliance,” the report stated.