More than 80% of investment advisors would prefer to pay user fees to fund greater SEC oversight than to be overseen by a self-regulatory organization, a major new study found. 

Boston Consulting Group conducted an economic analysis of the issue at the request of the CFP Board, the Financial Planning Association, the Investment Adviser Association, the National Association of Personal Financial Advisors and TD Ameritrade Institutional.

The study is in response to the SEC’s study performed under the Dodd-Frank Wall Street Reform and Consumer Protection Act. In that study, the SEC looked at three options for increasing investment advisor examinations: 1) authorize the SEC to collect fees from SEC registered investment advisors to fund the examinations; 2) authorize a self regulatory organization to examine all SEC-registered investment advisors, with the SEC overseeing the SRO; or 3) authorize FINRA to examine dual registrants for compliance with the Advisers Act.

In its study, Boston Consulting modeled the costs involved with each scenario, including setup and ongoing costs and the cost of SEC oversight, as well as the level of funding and total fees required.

Among its key findings, Boston Consulting concluded that funding an enhanced SEC oversight program would cost $240 million to $270 million a year, while a FINRA SRO would cost $550 million to $610 million, and an entirely new SRO would cost $610 million to $670 million per year.

Meanwhile, funding an SRO would likely cost investment advisers around twice as much in user fees compared to the user fees they would pay the SEC for enhanced oversight, according to the study. The annual fee per investment advisor firm would be $27,300 for an enhanced SEC program, compared with $51,700 for a FINRA SRO and $57,400 for a new SRO.

“As most of our members are small business owners, NAPFA is keenly aware of the likely disparity in funding costs between the SEC, FINRA or a new SRO. We are unwilling to support a new layer of bureaucracy that would burden our member firms and further confuse consumers,” said Susan John, chair of the National Association of Personal Financial Advisors, in a statement.

“We firmly believe that the SEC should retain oversight of investment advisors and be given the tools to adequately do the job, including the option of imposing user fees, which will be the most appropriate and cost-effective way to achieve the most important goal — protecting investors,” said Kevin Keller, chief executive officer of the CFP Board of Standards.

Danielle Reed writes for Financial Planning.




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