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FPC Renews Calls for User Fees to Fund SEC Exams

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Members of the Financial Planning Coalition are again calling for legislation giving the SEC the authority to collect fees from RIAs to fund practice examinations, rejecting calls from key Republican lawmakers who are asking the commission to find an alternative path to increase oversight.

The FPC – composed of the CFP Board, FPA and NAPFA -- last week took issue with a letter that Reps. Jeb Hensarling (R-Texas) and Scott Garrett (R-N.J.) sent to SEC Chairman Mary Jo White, urging her to reallocate existing resources within the commission to increase the rate of advisor exams, and to consider enlisting a third party to conduct its own reviews of RIAs.

"While we are pleased that Chairmen Hensarling and Garrett recognize there is a problem resulting from the lack of investment advisor examinations, we strongly disagree that merely asking the SEC to reallocate its stretched and inadequate resources or outsourcing examinations to third parties is the solution," the FPC says in a statement.

There is little disagreement that the SEC's oversight of advisors has been sufficient. Last year, for instance, SEC examiners reviewed just 9% of the advisors under the commission's purview.


Hensarling and Garrett acknowledge as much in their letter, writing, "We agree that a greater portion of the more than 11,000 investment advisors currently registered with the SEC must be subject to regular and robust examinations."

But they reject the notion of authorizing the SEC to collect user fees to fund more exams, warning that such a move would disproportionately harm small and midsized advisors add new layers to what they see as an already overweight bureaucracy.

Instead, they suggest that the commission take steps on its own, without additional funding from Congress, to free up resources for advisor exams. The commission could lean on FINRA to take on greater oversight of broker-dealers, for instance, thereby freeing up commission staff who could focus on RIAs.

Additionally, Hensarling and Garrett are urging White to look outside the commission and to consider how a third party organization might be able to share in oversight of the advisory sector.

"The SEC's willingness to solve its own problems rather than seek additional appropriations or the authority to impose new fees would be a welcome development," Hensarling and Garrett write.

They requested responses to the concerns raised in their letter by Friday. An SEC spokeswoman declined to share the commission's reply.


For the FPC, which has in the past fought against proposals to bring a self-regulatory organization like FINRA into the advisor examination process, the lawmakers' concerns are off base. The group argues that the costs for the industry can be calibrated to protect small advisory practices, and cites support within the industry for the user fees option.

"In Washington there is a tendency to make complex what should be simple," the FPC says. "The simplest and most cost-effective solution that will in fact protect investors is to enable the SEC -- the expert agency on advisor regulations -- to increase examinations with very strong support of advisors and at no cost to taxpayers."

FPC members have been advocating on behalf of legislation that would authorize the SEC to begin collecting user fees to fund exams, though that bill has not been considered in the House Financial Services Committee, which Hensarling chairs.

User-fee advocates recognize that they have an uphill battle in a Republican-led House that has shown little inclination to consider legislation to expand the SEC's size and authority. Groups like the Investment Adviser Association have been working with members of the Senate to bring forward a bill in that chamber, but so far none has emerged.

Reached by email on Friday, Neil Simon, the IAA's vice president for government relations, says his group will continue working to produce a bill in the upper chamber once the GOP takes over.

"We were already aware that we had a heavy lift in the House, but remain optimistic that we can get bi-partisan Senate legislation moving in the new Congress," Simon writes.

Kenneth Corbin is a Financial Planning contributing writer in Washington.

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