Informed consumers can be a powerful antidote to bad news about advisors who do wrong by their clients.
By Cyril Tuohy
Investor advocate Rick A. Fleming said legislation imposing user fees on investment advisors would not increase the nation’s budget deficit.
Critics of user fees say spending government funds to police advisors is a waste of money and that the Securities and Exchange Commission’s higher budgets in recent years should be able to cover the costs of more advisor examinations.
Higher spending for user fee examinations would match the revenue collected from advisors, Fleming told securities industry experts last month.
“In fact, even without authorizing user fees Congress could increase the direct appropriation to the SEC without increasing the deficit because the SEC is already required to collect transaction frees from SROs (self-regulatory organizations) that offset its appropriation,” he said.
Congressional Budget Office auditors estimate the deficit, or the gap between what the government takes in and what it spends, will come in at $506 billion at the end of the fiscal year Sept. 30. This figure is about $170 billion lower than in the last fiscal year but slightly higher than April estimates.
Under the user-fee proposal, the Securities and Exchange Commission would levy fees on SEC-registered advisors so that SEC compliance officials can administer exams to more advisors to weed out fraud.
Key industry groups and the SEC’s Investor Advisory Committee have backed the measure but skittish lawmakers are wary of the fees as they represent deeper intrusion of government into the affairs of investment advisors.
Other critics argue that the SEC’s bigger budget should be enough for the agency’s Office of Compliance and Examinations (OCIE) to police advisors without levying user fees, which some critics consider another tax that would widen the nation’s deficit.
The SEC’s budget for 2013 is $271 million, an increase of more than 30 percent from 2009.
In an address to securities professionals in August, Fleming said that passing user fee legislation “should be an easy thing to accomplish.”
“Well … this is where things get tricky in Washington, D.C.,” Fleming told a gathering at the 38th annual Southwest Securities Conference in Dallas.
With midterm elections in November, it’s unlikely that Capitol Hill lawmakers are going to pass much in the way of legislation.
Only 9 percent of all registered investment advisors were examined by the SEC in 2013, leaving gaps and opportunities for rogue advisors. “This equates to a frequency of approximately once every 11 years, a rate that many observers find unacceptable,” Fleming said.
Fleming also said the growth of the SEC’s budget “has been dwarfed by the number and complexity of registrants,” leaving SEC examiners with a low overall coverage rate.
In the past 11 years, the number of SEC-registered advisors has grown by 40 percent to 11,500 advisors, and the amount of assets managed by those advisors has gone from $20 trillion to an estimated $55 trillion.
In comparison, the OCIE staff has grown only about 10 percent over the same period and the SEC files complaints against advisors on a monthly basis.
Other budgetary priorities have taken precedence over user fees. Priorities include technological upgrades for the SEC’s filings database and the development of a system for tracking tips, complaints and referrals, Fleming said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at email@example.com.
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