SEC to Increase Onsite Advisor Exams

The Securities and Exchange Commission plans to “significantly” increase onsite exams of advisors within the next six months, Natasha Greiner, deputy director of the SEC’s Division of Examinations, said Thursday.

In 2022, the SEC examined approximately 15% of RIAs.

This exam rate was “achieved despite continued growth” in the RIA industry, Greiner said during a meeting of the SEC’s Investor Advisory Committee. There are now 15,500 SEC-registered RIAs, she said.

“Going forward, as the industry continues to grow and change, maintaining our coverage ratio can only be achieved with sustained investments in human capital and technology resources,” Greiner said.

Under the Consolidated Appropriations Act of 2023, the SEC received $2.2 billion, an increase of $210 million from fiscal year 2022.

Greiner said the funding boost would allow the agency to hire additional staff, many of which will be within the exam division.

SEC Chairman Gary Gensler noted during his opening remarks at the meeting that advisors “play an expansive and expanding role in our markets and in Americans’ lives.”

Investment advisors, Gensler said, “have 53 million separately managed accounts, of which 51 million are individual accounts. They advise hedge funds, mutual funds, money market funds, and other institutional investors. In total, they have more than $125 trillion of assets under management.”

The exam division has “maintained a 15%” exam coverage rate during the past three years of the pandemic, Greiner said.

In March 2020, the agency “shifted to primarily exams where we don’t go onsite, and we were able to maintain our coverage amount during those years,” Greiner said.

Exam staff, she continued, “will be returning back to the office at the end of March, so with that being said, we’ve already started conducting onsite exams … and we plan to continue to increase our onsite presence.”

Said Greiner: “You’ll see a bit of a hybrid” approach to exams, but there will also be a “likely significant increase in onsite presence in the next six months as we transition back to the office.”

Michael Canning, principal and founder of the LXR Group in Washington and a former director of government affairs at the North American Securities Administrators Association, told ThinkAdvisor Thursday in an email that the SEC’s 15% annual exam rate of advisors “is clearly too low.”

The SEC exam division “has done its best to keep pace, including through technology and efficiencies, but the agency is struggling to keep pace, today’s IAC meeting reinforced that impression,” Canning said.

Exactly how to increase RIA exams “is much trickier than it appears,” Canning opined.