SEC Investor Advocate Makes Case for User Fees

This week, Rick Fleming, the SEC’s Investor Advocate, delivered a speech at the Southwest Securities Conference in Dallas, Texas.  In his remarks, Fleming described the newly created Office of the Investor Advocate, created under the Dodd-Frank Act, and the core issues impacting investors that the office will focus on during its inaugural year.  In addition, Fleming acknowledged the need to provide the SEC with sufficient funding to “conduct an adequate number of investment adviser examinations,” going so far as to recommend Congress authorize the SEC to collect user fees as a long-term solution to funding RIA examinations.  The following is an excerpt from his speech, the full text of which can be found here.

“As many of you are aware, the SEC examined only about 9 percent of registered investment advisers in Fiscal Year 2013. This equates to a frequency of approximately once every 11 years, a rate that many observers find unacceptable.

“There are multiple reasons for the lack of exam coverage, but in my view it primarily boils down to the fact that the SEC has not received sufficient resources to keep up with the burgeoning workload. The number of SEC-registered advisers has grown by approximately 40 percent over the past decade to nearly 11,500 today. And, as the number of investment advisers has grown, so too has their complexity. The amount of assets managed by investment advisers is on a steep ascent, climbing from $20 trillion a decade ago to an estimated $55 trillion by the end of Fiscal Year 2015. In comparison, staff in the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) has grown only about 10 percent in the past decade.

“From my own personal experience, I know that investors are exposed to fraud and abuse when regulators cannot maintain an adequate regulatory presence. While most investment advisers are trustworthy and honest, I have personally prosecuted one who stole more than $7 million from his clients. In the course of that case, I met with numerous victims who did everything right – they worked hard, saved their money, and entrusted their savings to a licensed person who they thought was investing it in a normal portfolio of legitimate securities – only to have their life savings taken by that licensed “professional.” For those investors, an ounce of prevention would have been worth far more than the pound of cure. With their money gone, a maximum prison sentence did little to help those retirees who had to return to work or face a diminished standard of living, or the individual with diminished capacity whose trust fund was stolen, or the church that lost its building fund.

“Not surprisingly, then, as my very first recommendation to Congress, I recommended that Congress appropriate the needed funds this year so that the Commission can hire more examiners without further delay. In addition, I voiced support for a more long-term, sustainable solution. I recommended that Congress authorize the SEC to collect an annual “user fee” from registered investment advisers and to limit the use of those funds to expenses associated with investment adviser examinations.

“Admittedly, a shorter examination cycle won’t stop all fraud, but I believe it will allow the SEC to halt these types of activities sooner and will provide a stronger deterrent to advisers who might otherwise succumb to the temptation to steal. It will also curtail other unethical practices, including excessive fees, excessive trading, and undisclosed conflicts of interest. Many of you in this room have uncovered these types of practices and can attest to the damage it causes to investors.”

Four Years After Dodd-Frank, Uniform Fiduciary Standard Still Urgently Needed

Washington, D.C. – The Financial Planning Coalition – comprising Certified Financial Planner Board of Standards, Inc. (CFP Board), the Financial Planning Association® (FPA®) and the National Association of Personal Financial Advisors (NAPFA) – issued the following statement on the fourth anniversary of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act:

“The Dodd-Frank Act was born out of the financial crisis, and one of its central goals was to protect American consumers against the excesses of the financial services industry. Yet, four years after Dodd-Frank’s passage, the Securities and Exchange Commission (SEC) has neither proposed nor adopted a uniform fiduciary standard – a fundamental and much-needed protection for American consumers who rely upon broker dealers for financial advice and information. Section 913 of Dodd-Frank granted the SEC the authority to extend this critical investor protection.

“To make matters worse for consumers, the U.S. House of Representatives recently approved an amendment to the FY 2015 budget that prohibits the SEC from using any of the appropriated funding to adopt a fiduciary standard. This amendment would guarantee investors remain exposed to significant and unjustifiable harm, including higher costs, poorer performance and substandard products too often not in the investor’s best interest.

“The Financial Planning Coalition urges the Senate to reject this anti-investor amendment –which guts an important part of Dodd-Frank – and renews its call for the SEC to protect investors by adopting a uniform fiduciary standard for broker-dealers that is no less stringent than the existing standard for investment advisers. Such a requirement is long overdue.”

Financial Planning Coalition research shows that American consumers want the federal government to play an active role in protecting investors, including through the adoption of a fiduciary standard. In fact, in response to a 2013 survey,93 percent of respondents said that they agree with the statement that financial advisers providing advice “should put your interests ahead of theirs and should have to tell you upfront about any conflicts of interest that potentially could influence that advice” – the very definition of the fiduciary standard.

Financial Planning Coalition Launches New Website to Inform and Engage Stakeholders for Legislative, Regulatory Advocacy

WASHINGTON, D.C. – The Financial Planning Coalition – comprising Certified Financial Planner Board of Standards, Inc. (CFP Board), the Financial Planning Association® (FPA®) and the National Association of Personal Financial Advisors (NAPFA) – today announced the launch of a new website  designed to engage stakeholders in the Coalition’s efforts to educate lawmakers, regulators and consumers on critical investor protection measures needed to ensure financial planning services are delivered in the public’s best interests.

The new website – located at – provides regular updates on the policy issues impacting the delivery of financial planning services to the public, and makes it easier for the Coalition’s nearly 80,000 stakeholders to take action on the issues.

“As the Coalition continues to advocate before policymakers for increased consumer and investor protection in financial planning, we recognized a need to revisit our web presence to more effectively communicate our mission and policy objectives,” said the Coalition. “Our goal is to ensure that the voices of financial planners are heard on the issues of importance to the public and our profession, including the extension of a uniform fiduciary standard of care to broker-dealers and greater investment adviser oversight.”

In addition, the Coalition sought to refresh its branding to better reflect the collaboration and cooperation inherent to this partnership in a distinctive, bold and contemporary fashion. The seal with interlocking letters forming the core of the logo is intended to represent this collaboration, while the color palette incorporates an element of each partner organization’s branding.

Financial Planning Coalition Applauds Rep. Bachus’ Co-Sponsorship of H.R. 1627

Washington, D.C. – The Financial Planning Coalition applauds Rep. Spencer Bachus (R-AL), the Chairman Emeritus of the House Financial Services Committee, for becoming a co-sponsor of H.R. 1627, the Investment Adviser Examination Improvement Act.

This bill, introduced by Financial Services Committee Ranking Member Maxine Waters (D-CA) and Rep. John Delaney (D-MD), would authorize the Securities and Exchange Commission (SEC) to collect reasonable user fees from SEC-registered investment advisers for the sole purpose of increasing the dangerously low number of examinations the SEC currently conducts.

“We commend Rep. Bachus’ decision, as well as the decisions of the 14 additional Members of Congress who have recently signed on as co-sponsors of this important investor protection measure,” said the Coalition. “This support demonstrates that investor protection is not a partisan issue and we expect to see the number of co-sponsors on both sides of the aisle continue to grow.  Further, their decisions highlight that a user fee is a sensible solution to the vexing resource problem at the SEC – a solution that industry supports and that has no impact on the federal budget.  We look forward to continuing to support this legislation and to working with all Members of Congress who want to improve protections for American investors.”

The Financial Planning Coalition is a strong supporter of H.R. 1627 as the most cost-effective, efficient and industry-supported way of providing the SEC with the necessary resources to protect American investors – particularly in light of Congress’ failure to appropriate sufficient funds.  Due to a chronic lack of resources, the SEC currently is able to examine only about nine percent of the approximately 11,000 investment advisers registered with the agency.  This amounts to investment advisers being examined at the unacceptable rate of about once every 11 years.

H.R. 1627 is a targeted solution to the persistent resource gap at the SEC that would: 1) limit the use of collected fees to the SEC’s examination program; 2) require that the SEC determine the fees through a public rulemaking; 3) require the SEC to take into account factors such as the investment adviser’s size and assets under management when determining a fee; and 4) require the Comptroller General to conduct an audit of the funds’ use every two years.

Financial Advisor: SEC Chair White Attacked For Weak Investor Protection

Ted Knutson of Financial Advisor reports that several consumer advocates have forcefully criticized SEC Chair Mary Jo White for slow and weak investor protection rulemaking, including the Commission’s failure to adopt a uniform fiduciary standard.

Excerpt– Securities and Exchange Commission Chairman Mary Jo White was attacked for slow and weak investor protection rulemaking by several consumer advocates in e-mails and conversations with Financial Advisor magazine.

“Investor protection under Chair White has been virtually nonexistent. Her positions in the crowdfunding and private offering rulemakings and her false promises regarding the fiduciary duty reflect a strong anti-investor bent,” said SEC Investor Advisory Committee member and University of Mississippi Law Professor Mercer Bullard on Tuesday.

Investment News: House provides SEC with $50 million budget boost

Mark Schoeff of Investment News reports that the spending bill passed by the House of Representatives on June 16 raises the SEC’s budget by $50 million, but is $300 million less than the SEC needs to strengthen investment adviser oversight. Efforts by Rep. Maxine Waters (D-CA) to attach an amendment allowing the SEC to charge user fees to make up for this budget shortfall were unsuccessful. The bill also includes an amendment barring the SEC from imposing a fiduciary standard on broker-dealers during the federal fiscal year beginning October 1.

Excerpt– The House of Representatives approved a spending bill Wednesday that denies the Securities and Exchange Commission the funding it says it needs to strengthen investment adviser oversight.

In a 228-195 vote, the House passed a $21.3 billion appropriations bill that funds the SEC, Treasury Department and many other agencies. The measure gives the SEC a $50 million budget increase, about $300 million less than the agency requested. Under the bill, the SEC would operate on a $1.4 billion budget in fiscal 2015, which begins on Oct. 1.

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