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Women have a lot of reasons to plan for Chronic Illness Care.
Women have a lot of reasons to plan for Chronic Illness Care.
Women have a lot of reasons to plan for Chronic Illness Care.

SEC Wants To Beef Up RIA Exams


If registered investment advisors (RIAs) haven’t had any federal regulators knocking on their door lately, it might be because the nation’s top cops in securities regulation don’t have the means to do so.

The U.S. Securities and Exchange Commission (SEC) said it examined only about 9 percent of RIAs in fiscal year 2013. That works out to nearly 1,000 examinations that year from the total group of more than 11,000 SEC-registered advisors.

This happened even though the number of RIAs has increased by more than 40 percent over the last decade, and even though these advisors’ assets under management have increased “more than twofold, to almost $55 trillion,” the commission said in its new budget request for fiscal year 2015.

In an effort to beef things up, the SEC is seeking $1.7 billion in funding for fiscal year 2015. That’s nearly 31 percent more than the $1.3 billion appropriated for fiscal year 2014, but the SEC said the increased amount would enable the agency to add 639 positions.

The increase

According to the budget request, nearly half (316) of those new positions would be used to hire additional examinations personnel in the Office of Compliance Inspections and Examinations (OCIE). Those are the people who examine RIAs and others who offer securities products (including variable annuities) to consumers.

Additional staff will allow the agency to examine more registered firms, “particularly in the investment management industry,” the staff said.

More staff also will enable the commission to continue implementation of certain legislative changes, and to perform various other functions.

Up to now, the SEC has focused its limited examination staff “on those areas posing the greatest risk to investors,” the staff wrote in the new budget request.

“Additional resources, however, are sorely needed to permit the SEC to increase its examination coverage of investment advisors. The status quo does not provide sufficient protection for investors who increasingly turn to investment advisors for assistance…”

The 323 remaining staff increases would be for proposed positions in enforcement, technology, oversight of market infrastructure, derivatives and clearing agencies, staff training, and various other areas.

Some perspective

The low percentage of SEC examinations is not new. A year ago, in its budget request for fiscal year 2014, the SEC reported that its staff had had examined only about 8 percent of registered advisors in fiscal year 2012.

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On that basis, the low percentage of examinations performed in fiscal 2013 (9 percent) is actually an improvement over fiscal 2012 (8 percent). However, the uptick in 2013 was by only by a hair.

That year-ago report also said that more than 40 percent of registered advisors had “never” been examined. Based on the SEC’s published numbers, the agency was responsible for oversight of about 11,000 registered advisors that year. This means that, as of fiscal 2012, roughly 4,400 registered advisors had not been examined by the SEC — ever.

Most advisors are probably not objecting to a low examination percentage, at least from the perspective of the firm being free from spending time and effort on examination-related activity. However, customers like the idea of working with firms that are subject to rigorous oversight, some advisors have said privately, so a continued low percentage of examinations could adversely impact customer confidence.

If recent past is prologue, the SEC may have a hard time getting the requested funding for fiscal year 2015.

For fiscal year 2014, for example, the staff had requested $1.67 billion — an amount that the SEC said would have allowed the hiring of an additional 676 individuals, of whom 250 would have been examiners. But in the bipartisan appropriations deal struck this January, Congress appropriated only $1.3 billion to the SEC for fiscal 2014.

For fiscal year 2013, the SEC had requested $1.56 billion, but the actual appropriation for that year turned out to be $1.32 billion.

According to the new budget request, the SEC currently oversees more than 11,000 investment advisors, almost 10,000 mutual funds, 4,450 broker/dealers and 450 transfer agents. It also oversees the Financial Industry Regulatory Authority (FINRA), the Municipal Securities Rulemaking Board (MSRB), the Securities Investor Protection Corporation (SIPC), the Financial Accounting Standards Board (FASB) and the Public Company Accounting Oversight Board (PCAOB).

The agency said it made “substantial progress” last year in a number of “mission-critical areas” such as meeting various Dodd-Frank mandates and building up its enforcement program. But it said it needs “significant additional resources to keep pace with the growing size and complexity of the securities markets and the agency’s broad responsibilities.”

, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda may be reached at

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