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Congresswoman Waters Introduces Legislation to Protect Investors, Increase Oversight of Investment Advisers

July 25, 2012
Press Release

Congresswoman Maxine Waters (D-Calif.) today introduced the Investment Adviser Examination Improvement Act of 2012, which would provide the Securities and Exchange Commission (SEC) with the authority to impose and collect user fees on investment advisors for the purpose of increasing the number and frequency of SEC examinations.  This bill is co-sponsored by Reps. Barney Frank and Michael Capuano.  The Congresswoman's statement on the introduction of her bill is below:

"It is absolutely essential that we improve the oversight of investment advisers – the people that manage the assets of millions of individual and institutional investors across the country. 

"Since the crisis four years ago, we have witnessed an unfortunate deterioration in the public's confidence in our financial markets.  Though the vast majority of investment advisers operate with integrity and want to help their clients meet their financial goals, it is clear that the SEC's current examination levels need to be augmented in order to bolster the public's trust in this marketplace.

"That's why I've introduced the Investment Adviser Examination Improvement Act of 2012.  My legislation would provide a dedicated funding source to the SEC to enable a robust investment adviser oversight program, consistent with the first recommendation made by SEC staff in the report required under Section 914 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. 

"The SEC currently only examines approximately 8 percent of advisers annually, out of the approximately 11,000 advisers registered with the Commission.  This legislation would provide the SEC with additional resources to enable examinations, provided that the Commission increases their activity relative to fiscal year 2011. 

"I believe that this approach provides the simplest, most efficient solution to the problem of inadequate adviser oversight.  Also, because the user fees contemplated in my legislation would only be used to fund the regulation of investment advisers, and not to subsidize other functions at the SEC, I think that this option would be more cost effective for the industry.  In fact, a recent study by the Boston Consulting Group found that establishing a self-regulatory organization (SRO) would likely cost twice as much as funding an enhanced SEC examination program.

"This fact is echoed by Investment Adviser Association Executive Director David Tittsworth, who notes that ‘this legislation represents the smartest, fastest, and most cost-effective solution to ensure greater frequency of investment adviser examinations.'  Likewise, Jack E. Herstein, president of the North American Securities Administrators Association (NASAA), notes that, ‘the best way to improve oversight of federally registered investment advisers is to provide the SEC with the resources needed to do the job,' as contemplated by the Investment Adviser Examination Improvement Act of 2012.

"SEC funding is only now recovering from its erratic levels during the last decade.  And still, resources at the agency are not commensurate with the broad and complex responsibilities delegated to them from Congress.  My legislation will help the SEC to close this resource gap.  And by entrusting this responsibility to the SEC, it will also leverage their 70 year history of experience in this regulatory role, and prevent the establishment of a duplicative SRO bureaucracy that will increase costs on the investment adviser industry.

"I look forward to receiving additional stakeholder feedback on my legislation, and hope to work with my colleagues on the Financial Services Committee to advance the bill through the legislative process."