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House seeks to fund SEC adviser exams with new fees

July 25, 2012
In The News

By Suzanne Barlyn

July 25 | Wed Jul 25, 2012 1:22pm EDT

(Reuters) - U.S. House lawmakers on Wednesday introduced legislation that would require certain investment advisers pay fees to help fund adviser examinations conducted by regulators.

Representative Maxine Waters from California, the second-ranking Democrat on the House Financial Services Committee, said in a statement that she introduced the bill "to provide a dedicated funding source" to help the U.S. Securities and Exchange Commission better police the roughly 10,000 investment advisers the agency will oversee.

The bill is co-sponsored by Representative Barney Frank, ranking member of the House Financial Services Committee, Representative Michael Capuano. Both are Democrats from Massachusetts.

The measure, the Investment Adviser Examination Improvement Act of 2012, is the latest development in an ongoing debate on Capitol Hill about how best to deal with the SEC's inability to adequately examine investment advisers. The agency, due to strained resources, examines its registered investment advisers roughly once every 11 years, according to a study by agency staff.

In June, U.S. House lawmakers debated a separate bill introduced by Financial Services Committee Chairman Spencer Bachus, a Republican, and Representative Carolyn McCarthy, a Democrat, that would require a self-regulatory organization for registered investment advisers.

Unlike broker-dealers, investment advisers have no self-policing group and are typically examined by the SEC or states.

While the bill introduced on Wednesday does not set amounts for fees the SEC could charge to advisers, it would require the agency to ensure figures are equal to the agency's estimated fiscal year cost for inspecting and examining advisers registered with the agency.

A formula the SEC would use for determining those fees includes factors such as an adviser's assets under management and potential risk posed to investors.

The SEC's use of those fees and the formula for calculating them would be subject to review every two years by the head of the U.S. Government Accountability Office, which oversees how the federal government spends money.

"This legislation represents the smartest, fastest, and most cost-effective solution to ensure greater frequency of investment adviser examinations," said David Tittsworth, executive director of the Investment Adviser Association, a trade group, in a statement.

The measure would "provide a stable source of funding to be used for the sole purpose of enhancing investment adviser examinations," he said.

Still, it is unlikely that either the user fee bill, or the one that would establish a self-regulatory organization for advisers, will be adopted, said Barbara Roper, director of investor protection for the Consumer Federation of America, an advocacy group. That would be "unrealistic" given the few months remaining before November elections.

Roper's group is otherwise "pleased" about the user-fee measure, which she called a "serious proposal."