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Maxine Waters Proposes New Bill on Advisor Fees for SEC Exams

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WASHINGTON - The ranking Democrat on the House Financial Services Committee is making another push to charge advisors for SEC examinations.

Rep. Maxine Waters (D-Calif.) this week introduced the Investment Adviser Examination Improvement Act, a bill that would authorize the SEC to collect user fees from advisors to fund a more extensive examination system for investment advisors.

That move, which quickly drew support from some quarters of the advisor community, has the potential to reignite a debate that emerged briefly last year on Capitol Hill.


At the time, Waters backed a similar bill to grant new funding authority to the SEC for advisor oversight, while Spencer Bachus (R-Ala.), then the chairman of the Financial Services Committee, authored legislation that would have permitted the SEC to name one or more self-regulatory organizations to take on oversight of the sector.

Had Bachus' bill prevailed, the most likely candidate to take on the regulatory role was FINRA, which had lobbied in support of the legislation.

Neither measure made it out of committee, but backers of both bills agreed, as a starting point, that the SEC's current oversight of the industry is inadequate. By the SEC's own estimates, it only examined 8% of federally registered advisors in 2011, and 40% had never been subjected to an SEC review.


Under the bill Waters introduced this week, the SEC could only use the new industry fees to fund exams that exceed the number of reviews the agency undertook in fiscal 2012. Further, the rulemaking process through which the SEC would determine the formula for assessing the fees would consider individual advisors' assets under management, risk characteristics and the number and type of clients they serve.

Rep. John Delaney (D-Md.) has signed onto the measure as a co-sponsor.

David Tittsworth, executive director of the Investment Adviser Association, said that the SEC, by virtue of its long history of overseeing the industry, "is in the best position to implement more frequent and effective investment advisor examinations."

"This legislation represents the smartest, fastest and most cost-effective solution to ensure greater frequency of investment advisor examinations," Tittsworth said in a statement. "It will provide a stable source of funding to the SEC to be used for the sole purpose of enhancing investment advisor examinations and will do so without the expenditure of any additional taxpayer dollars."


But the bill faces an uphill climb in a committee whose new chairman, Texas Republican Jeb Hensarling, has expressed little interest in tackling the issue of advisor oversight. When Hensarling recently outlined his priorities for the committee this year at a conference in Washington, he made no mention of the SEC's role in reviewing advisors -- signaling instead that he intends to focus his work on scaling back the role of the federal government in the housing industry and addressing the provisions in the Dodd-Frank Wall Street reform bill that he sees as preserving the "too-big-to-fail" ethos held over from the recent economic crisis.

Neil Simon, the Investment Adviser Association's vice president government relations, acknowledged that Waters' bill will probably languish in committee for some time, but said that his group and other supporters plan to step up their advocacy on the issue, and are concentrating more of their efforts on the upper chamber.

"While it appears unlikely that the bill will be acted upon, at least in near term, by  the House Financial Services Committee, we're hopeful that a bipartisan version of the bill may be introduced in the Senate," Simon wrote in an email. "And action will be more likely once the broad coalition of organizations supporting the bill makes their views known to Congress."

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