As regulators at the Securities and Exchange Commission continue to weigh options as to how to examine more registered investment advisors, one lawmaker is calling for the Financial Industry Regulatory Authority to step in and fill the gap.
The SEC only has the resources to audit about 10 percent of RIAs, a proportion widely regarded as dangerously low by regulators, lawmakers, and even stakeholders in financial services industry.
Now, Rep. French Hill, R-Arkansas, is saying he is exploring legislation that would give FINRA the authority to step in and fill the void.
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"The mission is to expand the scope of how to examine and review investment advisors. What I'm arguing is that FINRA would be a natural and effective existing organization, with existing management and existing capabilities, to perform that task," said the freshman lawmaker at last week's annual FINRA conference.
Last year, the SEC made "remedying inadequate examination coverage for investment advisors" a primary initiative of the agency.
The SEC estimated that in 2015, the number of RIAs registered at the federal level will grow to around 11,400, while about 31,400 RIA firms remain registered at the state level, meaning the SEC is charged with overseeing about one-third of all RIA firms.
By and large, once an RIA firm hits $100 million in assets under management, they are required to register with the SEC.
The SEC expects total assets of RIA firms it oversees to grow to $56 trillion in 2015. RIA in a Box, the compliance firm that consults with advisors in establishing RIAs, has put total assets of firms regulated by the SEC at $64.2 trillion, with the 100 largest firms managing almost half of that.
SEC exams in 2014 represented about 30 percent of total assets, suggesting the SEC is allocating the lion's share of resources to larger firms.
As Republican lawmakers have been reluctant to increase its budget, the SEC continues to give consideration to outsourcing oversight and exam authorities to third-party auditors.
Rep. Hill's call to have FINRA step in and pick up the slack was met with resistance from Investment Adviser Association, a trade group representing RIAs.
The IAA has been a vocal opponent of past proposals to expand FINRA's oversight to RIAs.
In a statement released after Rep. Hill's remarks at last week's FINRA conference, the organization said "it remains convinced that Congress should either increase the SEC's appropriation or permit the agency to levy reasonable user fees upon registered advisers dedicated to increasing the SEC's examination program."
In the statement, published on Rep. Hill's website, IAA's Vice President of Government Relations, Neil Simon, said the group looks forward to meeting the Rep. Hill "to discuss how best to bolster the SEC's examination of investment advisers."
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
