SEC Staff Wants an SRO to Oversee Investment Advisers

Earlier this month, the members of the Securities and Exchange Commission’s Division of Investment Management recommended that Congress either set up at least one self-regulatory organization that oversees investment advisers, impose “user fees” to fund examinations by the Office of Compliance Inspections and Examinations, or make investment adviser oversight the Financial Industry Regulatory Authority’s responsibility. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act’s Section 914, the SEC is supposed to assess itself and make recommendations for improvement.

Per the SEC’s report, there is at this time inadequate resources for examining the over 11,000 registered investment advisers-a number that will likely go down by 3,350 in July when Dodd Frank’s Section 410 goes into effect and advisers with assets under management valued at $100 million or less will have to register with the state where their main place of business is located. That said, the growth in the industry is such that by fiscal year 2021 there may be up to 13,908 registered advisors with a collective worth greater than $70 trillion.

However, while industry groups will likely endorse a more influential FINRA or a new SRO, investment advisers believe that self-regulation’s rules-based nature is not compatible with their business model and government oversight and regulation would be better for them. FINRA believes that an SRO will be able to “augment” government oversight. In the past, FINRA has expressed willingness to take on this role.

It is important that brokers and investment advisers are properly supervised to decrease the chances of investment fraud. Our investment fraud lawyers represent investors who have suffered financial losses because of investment adviser misconduct or securities fraud.

Related Web Resource:
Study on Enhancing Investment Adviser Examinations, SEC, January 2011
Office of Compliance Inspections and Examination

Division of Investment Management

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