SEC Makes Recommendations on How to Improve Advisor Oversight

A stronger, better regulatory system for financial advisors was one of the items for improvement listed in the 2010 Dodd-Frank financial reform law. The law instructed the SEC to study the situation and to provide Congress with recommendations for improvement. As reported in a Jan. 23InvestmentNews article, the SEC delivered the requested report late last Wednesday (“SEC offers 3 options for RIA oversight”).

According to the article, the SEC offered three options for improved regulations:

#1. Congress could authorize the SEC to impose fees on advisors that would be used to fund the SEC’s examination and enforcement efforts. The new law requires the SEC to begin monitoring advisers to hedge funds and private-equity funds - a task that the SEC cannot do effectively with its current resources. The Commission says an increase in fees could help fill the funding holes.

#2. Congress could allow the SEC to designate one or more of the self-regulatory organizations to oversee advisors. The SEC study makes it clear that a lack of funding is a serious threat to the SEC’s ability to effectively examine all investment advisors. If Congress prefers not to authorize the imposition of fees on advisors, the establishment of a separate agency to take on the responsibility of conducting the examinations may be a good option.

#3. Congress could grant FINRA the power to expand its oversight to include registered investment advisors of dually registered firms (those who have both advisors and broker-dealers). While this option is rife with controversy, it also has many vocal supporters.

None of the recommendations is without its industry critics, and debate over which course of action is the best will likely continue for some time.


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