The long-awaited SEC staff recommendation on how the heck to improve oversight of investment advisor examinations has arrived; 1.) it recommends charging advisory firms more dosh to help cover the cost of increased examinatinos; 2.)authorizing a bunch of other SROs (under the SEC's oversight) to join the examination fray and 3.) to allow FINRA to examine dual registrants (i.e. hybrid RIAs and b/ds) for compliance with the Advisers Act of 1940. SEC Commissioner Elisse B. Walter dissented. Here are some fun facts to know and tell from her dissenting opinion.
Walter calls the SEC staff's recommendations not precise enough or objective enough. She argues in her dissent letter that an SRO model would be efficacious, but "I do not believe that there has to be a single SRO or that it has to be FINRA." The report reckons a single SRO should do the job to help improve advisor examinations. In short, whatever SRO model the SEC chooses, it will cut costs and improve oversight.
I wonder: How much more will it cost to run an RIA if the user-fee model and an SRO solution are put in place?
Here are some facts about the current state of investment advisor examinations, as told by Walter:
* "The number and frequency of examination of investment advisers has gone down decidedly in the past five years";
* The number of examinations has "decreased since 2004 by nearly 30% and the frequency by 50%";
*That means, as thing currently stand, the average investment adviser can expect to be examined only once every 11 years;
*The Office of Compliance Inspections and Examinations (OCIE) covers just 9%of the investment advisor population;
* Why so few exams? Because RIAs are growing like a weed since 2004, both in numbers (38.5%) and assets under management (58.9%) and in comlexity.
In short, the SEC, the states, and the OCIE are simply outgunned. And Walter wonders where all this money is going to come from. She concludes that getting SROs into the game of examining RIAs, "the benefits of the SRO option will outweigh its costs."