WASHINGTON -- Legislation to step up the frequency of SEC examinations of investment advisors received a boost, winning its first Republican endorsement from Rep. Spencer Bachus (Ala.) on Thursday. In the last congress, Bachus, who then chaired the Financial Services Committee, favored an alternative approach that would have outsourced SEC exams to a self-regulatory organization.

With Bachus signed on as a co-sponsor, Rep. Maxine Waters (D-Calif.) now boasts bipartisan support for her Investment Adviser Examination Improvement Act, legislation backed by advisor trade groups and investor advocates.

Waters points to an examination cycle in which advisors might go more than a decade without a visit from the SEC, saying in a statement that she and Bachus are "in strong agreement that the SEC needs to police those who provide investment advice more often. And the best way to do so is by funding those additional exams through fees on these advisors."

It wasn't always that way.

BACHUS CHANGE OF HEART

Two years ago, when Bachus chaired the committee, he introduced legislation that would have taken a very different approach to increasing oversight of advisors. That bill would have tasked the SEC to designate one or more self-regulatory organizations to conduct examinations of advisors, much in the way that FINRA currently oversees brokers.

Though the bill did not specify, it was widely assumed that FINRA would step into that SRO role, a scenario that riled many advisors who worried that the organization's brokerage oversight model would be a poor fit for their industry.

At the time, Waters had introduced an earlier version of her user-fee bill. Both measures came up for a debate in a committee hearing, where there was widespread agreement that the SEC had not been able to adequately police the growing advisory industry, but no consensus on the remedy. Ultimately, Bachus withdrew his proposal and tabled the issue in the committee.

"The disagreements were not about the nature of the problem, but of the appropriate solution," says Neil Simon, vice president for government relations at the Investment Adviser Association. "I think [Bachus] has a new appreciation for the fact that the user fees have the support of the investment advisory profession, financial planners, and other stakeholders. These groups opposed the SRO model."

Bachus did not directly address why he is now supporting the user-fee bill that he once opposed, though in an email to Financial Planning he cited "widespread acknowledgment ... that the oversight of financial advisers needed to be improved" following the massive Ponzi schemes of Bernie Madoff and Allen Stanford.

"This would serve to benefit the good actors in the industry, who by far are the overwhelming majority, and help to enhance investor confidence," Bachus writes. "There have been various proposals to conduct more frequent examinations, but the important thing is to have a better system to stop potential fraud."

OBSTACLES

The Financial Services Committee under its new chairman, Texas Republican Jeb Hensarling, has shown little interest in revisiting the issue in the current congress, which is heading into its final months in an election-shortened session.

A spokesman for Hensarling did not immediately return a call asking for comment on the committee's plans to take up the issue of advisor oversight.

But Waters, the ranking minority member of the committee, has been pressing for consideration of her bill as she racks up co-sponsors, which, with Thursday's additions of Bachus and two more Democrats, now number 20.

Earlier this week, Waters offered an amendment that would have incorporated her user-fee proposal into a larger financial services spending bill, but that effort was shot down on procedural grounds by House Republicans.

The final version of that spending bill, which was roundly criticized by the White House, passed the House with a $1.4 billion appropriation for the SEC in fiscal 2015, some $300 million less than what the administration had been asking for. That spending bill, which includes funding for numerous other agencies, is now pending in the Senate. The White House has threatened a veto if the House version makes it to the president's desk.

The SEC, for its part, has not endorsed any particular proposal to address what it acknowledges is a shortfall in its oversight of advisors, save for its appeal to Congress for a funding increase in the form of an appropriation.

"They just haven't spoken to this. There is certainly recognition that the agency needs more resources to devote to the examination of advisors," Simon says. "It would be very helpful to our efforts to gain enactment of this legislation if the SEC were to endorse it."

A spokeswoman for the SEC did not immediately respond to a request for comment.

ALTERNATIVE PROPOSAL

In recent weeks, Republican SEC Commissioner Daniel Gallagher has been talking about an alternative proposal whereby the commission could act on its own -- without congressional authorization -- to authorize third parties such as auditors or exchanges to examine advisory practices.

Gallagher's plan has garnered interest from FINRA, among others, though advocates of the user-fee proposal like Simon argue that if Waters' bill were to become law, the debate would be moot.

"I don't think they're necessarily mutually exclusive, however if the user-fee legislation is enacted, I think it would render unnecessary that there be, you know, these third-party audits. This would allow the SEC to do the job," Simon says. "So I don't think there would be any reason for the oversight of investment advisors to be outsourced to third parties."

Securing the endorsement of Bachus, who now serves as chairman emeritus of the Financial Services Committee, seems a clear win for backers of the user-fee bill. However, in the political reality of mid-summer in an election year, advocates see the new bipartisan support more as a marker to carry into next year than an indication that the bill could move this session.

"Legislative activity in the waning days of this congress strikes me as unlikely," Simon says. "However, this increasing support for the bill certainly will give us some momentum for the next congress, and I am hopeful that we will be able to get it adopted in the new congress."

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