Financial advisors are sticking with the SEC.

Only about 2,100 SEC-registered investment advisors switched their registration to state oversight, according to the North American Securities Administrators Association -- roughly half the number that the SEC estimated would switch as a result of the Dodd-Frank Act.

In a recent report, NASAA called the switch of advisors from July 2010 through February 2013 “one of the most significant achievements” in its history. The switch came about Section 410 of the Dodd-Frank Act created a new group of “mid-sized advisers,” shifting primary responsibility for regulatory oversight of firms with $25 million to $100 million in assets under management to state securities authorities.

“A number of factors” may have contributed to the lower number of registration switches, says NASAA director of communications Bob Webster. Some firms went out of business in the past two years, he points out, and others may have expanded assets as a result of mergers, acquisitions and a rising stock market. The SEC target of 4,100 firms was “always a bit of a moving target,” Webster adds.


But the new law may have failed to accomplish the goal of reducing the SEC’s workload, says Todd Cipperman, principal of Cipperman Compliance Services managing principal of Wayne, Pa.-based Cipperman Compliance Services.

Cipperman noted that being registered with the SEC is a sign of prestige for advisors; many institutional clients use $100 million of AUM as a threshold for working with an advisory firm. As a result, many firms chose to remain registered with the SEC, says Cipperman, who suggested that some may even be stretching assets to hit the $100 million mark. (Any fudging of asset numbers would likely draw enforcement actions from the SEC, he points out -- a shift that could actually increase the agency's burden.)

Currently, states oversee approximately 17,350 investment adviser firms with assets under management of about $269 billion, while the SEC has regulatory responsibility for about 10,540 investment adviser firms.

“The switch represents a good example of how state and federal securities regulators can and do collaborate, and I commend both state securities administrators and staff, and the staff of the Securities and Exchange Commission for working together to provide investors with stronger investment adviser oversight,” said Heath Abshure, NASAA President and Arkansas Securities Commissioner in a statement.

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