Category Archives: Investment Adviser Oversight

Think Advisor: Never-Examined Advisors Top SEC’s 2014 Exam Priorities List

Melanie Waddell of Think Advisor reports on the SEC’s examination priorities for 2014, including advisors who have never been examined.

Excerpt: The Securities and Exchange Commission today announced its examination priorities for 2014, which include advisors who have never been examined, including new private fund advisors; wrap fee programs; quantitative trading models; and payments by advisors and funds to entities that distribute mutual funds.

As for broker-dealers, the securities regulator says it will zero in on sales practices and fraud, issues related to the fixed income market, and trading issues, including compliance with the new market access rule.

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Broad Coalition Message to Congress : Support H.R. 1627 to Improve SEC Investor Protection

WASHINGTON, D.C. -In a letter sent last week to all Members of Congress, a broad – based group of organizations, including consumer and industry groups and state regulators, urges support of H.R. 1627, the Investment Adviser Examination Improvement Act of 2013. The bill – sponsored by Rep. Maxine Waters (D-CA) and Rep. John Delaney (D-MD) – would authorize the Securities and Exchange Commission (SEC) to collect an annual “user fee” from registered investment advisers to increase the frequency of investment adviser examinations and to better protect American investors.

According to the groups that signed the letter, “It is imperative that the SEC be able to properly oversee the activities of registered investment advisers. We are deeply concerned that the SEC’s current inability to examine investment advisers more frequently increases opportunities for investor fraud and abuse.”

The group added: “A user fee is the best option to increase investor protection because it is an efficient, economical, and common sense solution to the SEC’s chronic problem of insufficient examination resources.”

The coalition is composed of a broad range of organizations, including AARP, Consumer Federation of America (CFA), Certified Financial Planner Board of Standards (CFP Board), Financial Planning Association® (FPA®), Investment Adviser Association (IAA), National Association of Personal Financial Advisors (NAPFA), and the North American Securities Administrators Association (NASAA).

The SEC has responsibility for examining about 11,000 federally registered investment advisers that manage approximately $48 trillion in assets. But the agency faces significant resource challenges in maintaining a robust examination program, as evidenced by the low examination rate of 8% last year and the projected 10% examination rate for the current year. Using recent examination rates as a barometer, the typical federally registered investment adviser can expect to be examined only once every 12 to 13 years. Moreover, approximately 40% of federally registered investment advisers, or two out of every five, have never been examined.

The group’s letter to Congress underscored that a user fee provides a funding source that impacts neither taxpayers nor the federal treasury. H.R. 1627 contains a number of meaningful safeguards that ensure that the fees will be collected and deployed in a manner consistent with Congressional intent. For example, the bill:

  • mandates that any fees collected be dedicated solely to an increased level of adviser examinations by the SEC;
  • requires the SEC to develop its fee formula through a public notice and comment rulemaking;
  • requires the SEC to consider, among other things, factors such as the size of an adviser, the adviser’s assets under management, and the adviser’s risk profile in determining a fee; and
  • requires the Comptroller General to conduct a biennial audit of the SEC’s use of fees.

SEC Chair Mary Jo White has stated that, due to a lack of resources, the SEC is unable to “enforce compliance with the securities laws in a way that investors expect and deserve.” In November, the agency’s Investor Advisory Committee recommended that the SEC request user fee legislation from Congress. The recommendation noted that the current level of examination “is simply inadequate to detect or credibly deter fraud” and that the SEC
cannot “enforce compliance with the securities laws in a way that investors expect and deserve.”

Financial Planning Coalition Renews Call for Increased Adviser Examinations by SEC

Washington, D.C., February 12, 2013 – Noting widespread agreement on the urgent need to better protect investors, the Financial Planning Coalition today renewed its call for a proactive, meaningful solution to prevent future investor fraud, including increased investment adviser examinations. With President Obama’s State of the Union being delivered this evening, the Coalition hopes the President will provide greater clarity on the future of investor protection.

Specifically, the Coalition – comprised of the Certified Financial Planner Board of Standards, Inc., the Financial Planning Association (FPA), and the National Association of Personal Financial Advisors (NAPFA), which represents more than 75,000 stakeholders – called for the adoption of the most cost-effective and efficient solution: the enhancement of the Securities and Exchange Commission’s (SEC) existing oversight program. The Coalition strongly supports the SEC using adequate resources for investment adviser oversight to ensure that examinations are conducted at least once every four years without impacting taxpayers or the federal deficit could include the assessment of user fees upon Registered Investment Advisers as an alternative to an SRO regulatory approach.

To achieve the needed oversight, without unnecessarily burdening advisers, small- and mid-sized advisory firms and their clients, the Coalition further encourages solutions that do not require establishing a whole new regulatory bureaucracy. The chosen solution must treat large, mid?sized and small investment advisers consistently and allow Congress continued direct oversight and accountability over the SEC.

The Coalition looks forward to working with lawmakers, regulators and industry groups on this important issue.