As we reported yesterday, the Commission has issued a report on the current state, and future of, the agency's investment adviser examination and enforcement. Following the release of the report, SEC Commissioner Elisse Walter issued a statement agreeing in general with the report's conclusions and recommendations, but criticizing the report for understating the urgency of the problem facing the Commission with regard to resources, particularly given the new requirements placed on the SEC by the Dodd-Frank Act.
Aside from the serious and systemic problems the series of unfunded mandates creates for the Commission as the investor’s advocate, it may exacerbate the trend of consistent growth in the advisory industry outstripping the Commission’s resources.
. . .
We need to address this issue now. It must not be relegated to another day—as has happened in the past. For far too long, in the investment advisory area, the Commission has been unable to perform its responsibilities adequately to fulfill its mission as the investor’s advocate, and investment advisory clients have not been adequately protected. This must change.
Commissioner Walter states that, although she voted to release the report, having studied these issues for many years, she feels compelled to add her comments.
Although I voted to release the study, for the first time in my tenure as a Commissioner, I feel that it is necessary for me to write separately in order to clarify and emphasize certain facts, and ensure that Congress knows that the current resource problem is severe, that the problem will only be worse in the future, and that a solution is needed now. I have spent many years considering these issues, and have definite and clear views on them.
Walter also criticizes the report for failing to properly lay out the advantages and disadvantages of two of the options offered by the staff in the report, user fees paid by advisers, and an independent or FINRA-related SRO for advisers.
For example, the study does not make clear that many of the benefits of the user fee option are shared by the SRO option. In addition to providing OCIE with the resources to perform more frequent examinations of investment advisers, they would both enable it to improve and modernize its investment adviser examination program. They would also provide the adviser examination program increased flexibility to reach developing and emerging risks associated with advisers and to direct staffing and strategic resources. Significantly, they both would provide a more facile capability to develop and employ needed technology to strengthen 6 the examination program. The result of these improvements would be a greater level of deterrence of wrongdoing. In addition, under the SRO option as well as user fees, the cost of regulation would be shifted to the advisers themselves.
Also, the study attributes virtually no disadvantages to the user fee option, but many disadvantages to the SRO and FINRA dual registrant options. The study does not lay out the variety of viewpoints regarding the SRO option, instead emphasizing those of the investment management industry and others who have concerns about the SRO option.
Walter lays out what she terms a more balanced analysis of these options.
The full text of Commissioner Walter's reaction to the SEC's report is available at: http://www.sec.gov/news/speech/2011/spch011911ebw.pdf