Moderator: Lisa A. Catalano, Professor and
Director, Securities Arbitration Clinic, St. John’s School of
Law
Anita K. Krug, Professor, University of Washington
School of Law
Even after the substantial amendments to the U.S. Investment
Advisers Act of 1940 that the Dodd-Frank Act brought about—or,
indeed, partly because of those amendments—the Advisers Act remains
incoherent. A product of the post-Depression regulatory push to
promote integrity of the securities markets through regulating its
participants, the Advisers Act, today, comprises a patchwork of
regulatory fixes that has largely ceased to address the investor
protection concerns that animate it. Among other things, the
statute does not reflect—at least not particularly well—the types
of advisory services commonly offered today or the types of
individuals and institutions that seek advisory services. My paper
asserts that, for the sake of more efficient capital formation and
better investor protection, the U.S. investment advisory regulatory
regime should be rethought and restructured. Its continued
efficacy, in other words, depends on its recognition of what
today’s investment advisers do, the contexts in which they conduct
their activities, and the concerns and needs of those who engage
advisers for their investment expertise.
Mark Tibergien, CEO, Pershing Advisor Solutions
[Abstract forthcoming]
David G. Tittsworth, Executive Director/Executive Vice
President, Investment Adviser Association
The following is an excerpt from Mr. Tittsworth’s June 6,
2012, statement before the Committee on Financial Services, United
States House of Representatives, Hearing on the Investment Adviser
Oversight Act of 2012:
H.R. 4624, the “Investment Adviser Oversight Act of 2012,”
mandates membership in a self-regulatory organization (SRO) for
SEC- and state-registered investment advisers. The bill would
subject thousands of advisory firms to an additional layer of
regulation by a private regulator with broad rulemaking, inspection
and enforcement authority – and, in all likelihood, that private
regulator would be FINRA.
The IAA strongly opposes H.R. 4624. The substantial drawbacks to
an SRO significantly outweigh any potential benefits. These
drawbacks include minimal transparency and accountability,
insufficient oversight by the SEC and Congress, conflicts of
interest, excessive costs, and the lack of meaningful due process
protections and cost-benefit analysis restraints.
H.R. 4624 unfairly targets small businesses. Because of
exemptions in the bill, smaller advisers are singled out for
additional regulation and costs. The substantial costs and
bureaucracy of an additional, unnecessary layer of SRO regulation
and oversight of advisory firms would have a significant adverse
impact on small businesses and job creation. Further, the bill
would result in inconsistent regulation and regulatory
arbitrage.
We support effective and appropriate measures to enhance the
SEC’s examination program for investment advisers. The SEC, a
governmental regulator that is accountable to Congress and the
public, has more than seven decades of experience and expertise
regulating and inspecting investment advisers. The SEC is
best-positioned to provide effective oversight for all
SEC-registered investment advisers, irrespective of asset size and
type of clients served. To ensure that the SEC has sufficient
resources for adviser oversight, and as an alternative to an SRO,
the IAA supports the assessment of an appropriate “user fee” on
SEC-registered investment advisers to be used solely to fund
additional examinations by the SEC. Legislation to authorize user
fees should include provisions that: (1) specifically preclude any
investment adviser SRO if such fees are imposed; (2) clarify that
such user fees will be dedicated to an increased level of
investment adviser examinations (instead of simply being used as
substitute funding for the existing level of examinations); and (3)
set forth specific SEC reporting requirements and review of any
such user fees by Congress and the public.
The user fee approach provides many benefits. User fees would
provide stable yet scalable resources to support and strengthen the
SEC’s examination of investment advisers. The fees collected would
be used solely to fund enhancements to the investment adviser
examination program and increase the frequency of adviser
examinations. Importantly, the reporting and accountability
embedded in the user fee approach would provide substantial
transparency and opportunity for congressional oversight and public
input.
As demonstrated by a recent Boston Consulting Group report, the
costs of user fees would be significantly less than the costs of
SRO oversight. Further, if an investment adviser SRO were mandated,
the resulting new oversight responsibilities would require the SEC
to expend significant additional resources.
We look forward to participating fully in the discussion of how
best to protect the interests of investors by ensuring effective
and efficient oversight of investment advisers. We strongly believe
there are better answers than the option presented by H.R. 4624 and
look forward to working with the Committee to implement the best
solution.