WASHINGTON BUREAU — The U.S. Securities and Exchange Commission (SEC) is thinking about paying for expanded oversight over SEC-registered advisors by imposing user fees on the advisors.
Another option for funding an increase in oversight of advisors could include allowing one or more self regulatory organizations to oversee all SEC-registered investment advisors subject to SEC oversight, SEC officials say in a new advisor regulation study.
A third option would be to authorize the Financial Industry Regulatory Authority, Washington, to examine "dual registrants," or advisors registered with both the SEC and FINRA, for compliance 
with the Advisers Act, officials say.
The SEC prepared the study to comply with a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The number and frequency of examinations of registered investment advisors have declined over the past 6 years, officials say the report.
The Dodd-Frank Act will shift responsibility for regulation of smaller advisors to the states. Only about 22% of the 2,636 registered investment advisors that had an affiliated broker-dealer
as of Oct. 1, 2010, will continue to be regulated by the SEC.
The shift could help the SEC improve oversight over bigger advisors, but the SEC "expects the number of registered investment advisers and the assets managed by them to grow in subsequent years," officials say.
"While the Commission's resources and the number of Office of Compliance Inspections and Examinations staff may increase in the next several years, the number of staff is unlikely to keep pace with the growth of registered investment advisers," officials say. "Based on these uncertainties, the Commission faces significant capacity challenges in examining registered investment advisers."
The SEC already has the authority to impose user fees, but the fee revenue goes directly to the Treasury; the agency believes it would need congressional approval to use a user fee to fund expanded advisor oversight, according to Robert Plaze, an associate director a the SEC Office of Investment Management.
Terry Headley, president of the National Association of Insurance and Financial Advisors, Falls Church, Va., notes in a statement that the SEC made no recommendation about which strategy to use.
"We are reviewing the report and evaluating the different options to determine whether they will affect NAIFA members and, if so, what the impact might be," Headley says.
The Financial Planning Coalition, Washington, a group that represents planners, has expressed concerns about the possibility that the SEC might outsource oversight responsibility.
The SEC is better prepared for overseeing advisors than FINRA or other self-regulatory organizations, coalition representatives say.
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