House Democrats on Wednesday introduced legislation that would expand the role of the U.S. Securities and Exchange Commission to conduct oversight examinations of investment advisors, a segment of the financial services sector that lawmakers on both sides of the aisle have agreed is under regulated.

The Investment Adviser Examination Improvement Act, sponsored by Rep. Maxine Waters (D-Calif.), would authorize the SEC to assess user fees on investment advisors to fund an expansion of its advisor examinations.

"It is absolutely essential that we improve the oversight of investment advisors -- the people that manage the assets of millions of individual and institutional investors across the country," Waters said in a statement.

Waters cited the SEC's own figure that it had examined just 8% of the roughly 11,000 registered investment advisors in 2011, a shortfall widely attributed to the agency's lack of funding. The agency has estimated that 40% of industry practitioners have never been examined.

The Waters bill, co-sponsored by Massachusetts Democrats Barney Frank and Michael Capuano, comes as an alternative to a bipartisan bill that would direct the SEC to name one or more self-regulatory organizations (SRO) to conduct oversight examinations of advisors, a role that in all likelihood would fall to the Financial Industry Regulatory Authority (FINRA), which already oversees broker-dealers.

Backers of both measures acknowledge that the current system of oversight is insufficient, but differ sharply on the appropriate role of the federal government to police the sector. Rep. Spencer Bachus (R-Ala.), the chairman of the Financial Services Committee and a sponsor of the Investment Advisers Oversight Act, the SRO bill, has argued that the responsibility for oversight would most appropriately be spread between state regulators and FINRA or another self-regulatory body.

Bachus' committee, which counts Waters and her two co-sponsors as members, held a hearing on the subject in June, where those divisions were on full display. At that proceeding, Frank, the ranking member on the panel, argued that the first step toward shoring up oversight would be to increase funding for the SEC. That approach would be codified in the new bill, which by relying on user fees steers clear of calling for any additional appropriations for the agency, which observers generally acknowledge is politically untenable.

"I believe that this approach provides the simplest, most efficient solution to the problem of inadequate adviser oversight. Also, because the user fees contemplated in my legislation would only be used to fund the regulation of investment advisers, and not to subsidize other functions at the SEC, I think that this option would be more cost effective for the industry," Waters said.

"SEC funding is only now recovering from its erratic levels during the last decade.  And still, resources at the agency are not commensurate with the broad and complex responsibilities delegated to them from Congress," she added. "My legislation will help the SEC to close this resource gap."

But critics, chief among them the Financial Services Institute, a supporter of the Bachus bill, have argued that any expansion of the SEC's authority, even if implemented through a self-funding mechanism, is a political dead end. The FSI has suggested that industry groups professing support for new SEC authorities are playing a political game in an effort to dodge real oversight over investment advisers.

"Increasing the SEC's budget to a level that would significantly increase consumer protection just isn't political reality," Chris Paulitz, a spokesman for the FSI, wrote in an email. Paulitz cited comments that SEC Commissioner Elisse Walter has made casting doubt on the agency's ability to ramp up examinations even if it received all of its requested funding.

But backers of legislation to beef up the SEC counter that inserting an SRO into the regulatory mix would create another burdensome and unnecessary layer of oversight and compliance without achieving meaningful oversight that truly benefits consumers.

Neil Simon, vice president for government relations at the Investment Adviser Association, confirmed that his association is actively supporting the measure, saying that the group worked closely with Waters' office in drafting the legislation.

IAA Executive Director David Tittsworth said the bill "represents the smartest, fastest and most cost-effective solution to ensure greater frequency of investment adviser examinations."

"Investment adviser user fees will be far more effective and efficient in enhancing examinations of advisers than establishing an unnecessary, additional layer of bureaucracy and cost associated with a self-regulatory organization," Tittsworth said in a statement.

The Financial Planning Coalition, which represents some 75,000 financial planners, quickly offered a similar statement of support for the new bill.