In a hearing before the House Financial Services committee on Tuesday, Chair Mary Jo White said she supported the idea of compliance reviews for RIAs by third parties to supplement, but not replace, examinations conducted by the commission's Office of Compliance Inspections and Examination.
“I do think the time is now to act. I think we really do need to complement our ability to cover those investment advisors,” White said. “It’s very important, particularly important to retail investors, but really the entire marketplace.”
White first voiced support for third-party examinations during a Securities Industry and Financial Markets Association conference in Phoenix last week, saying she had directed her staff to work on recommendations.
White said Tuesday the solution was “not optimal” and there were details still to be worked out.
“This would not be her first choice ... but it’s feasible because the SEC could implement it under its existing authority; it’s something the SEC can do without having to rely on Congress,” says Neil Simon, the Investment Advisor Association’s vice president for government relations.
The SEC has been criticized by some in Congress over how frequently the commission examines RIAs, though there is a lack of consensus on funding the commission to support a more rigorous schedule. Currently the SEC examines about 10 percent of RIAs on an annual basis, and about 30 percent of assets under management in this segment of the industry. In fiscal year 2014, the regulator conducted 1,150 exams of investment advisors and 493 exams of broker/dealers, White said in her testimony on Tuesday.
Investment advisors currently regulated by the SEC have chafed at the idea of submitting to third party exams in part because they fear it's an opportunity for the Financial Industry Regulatory Authority to lobby for the job and pull advisors into their self-regulatory organization. Accounting firms or advisor consulting organizations could also step into the role of third-party examiners.
“We encourage Chair White and the SEC to carefully consider all of the options for making necessary improvements to adviser oversight – including user fees – before proceeding,” the Financial Planning Coalition said in a statement Tuesday. The coalition is comprised of the CFP Board, the Financial Planning Association and the National Association of Personal Financial Advisors.
