NASAA Applauds Bill Authorizing SEC User Fees for Advisers

The North American Securities Administrators Association (NASAA) has applauded Rep. Maxine Waters (D-CA) for introducing legislation that would authorize the SEC to impose "user fees" on federally registered investment advisers. In a comment letter supporting the legislation, NASAA stated that the Investment Adviser Examination Improvement Act of 2012 (H.R. 6204) would significantly increase the resources available to the SEC to oversee large investment advisers, thus improving the frequency and overall effectiveness of examinations at no additional expense to taxpayers. More importantly, the legislation would not impose additional costs and added regulation on the thousands of small and mid-size investment adviser firms that are regulated by the states.

NASAA reaffirmed its position that investment adviser regulation is, and should remain, a governmental responsibility where oversight is both transparent and accountable. Unlike a private, third-party organization that does not have the expertise or experience with investment adviser regulation and that is accountable to a board of directors and not the investing public, government regulators bring to the table decades of unmatched experience. As a matter of policy and principle, NASAA believes that the most appropriate way to improve the oversight of federally registered investment advisers is to provide the SEC with the resources needed to do the job, either through increased appropriations, or by authorizing the SEC’s Office of Compliance Inspections and Examinations to collect user fees from the investment advisers it examines.

NASAA contended that authorizing the SEC to fund enhanced oversight of federally registered investment advisers through the imposition of user fees is also more efficient and cost-effective than establishing a self-regulatory organization (SRO) for advisers. NASAA cited a recent economic analysis performed by the Boston Consulting Group which found that establishing an SRO to examine investment advisers would likely cost twice as much as funding an enhanced SEC examination program. The analysis also found that investment advisers would likely pay twice as much in membership fees to an SRO as they would pay in user fees to the SEC. Further, imposing user fees would be a less expensive option because it eliminates the need for the SEC to spend significant resources in overseeing an SRO. According to the Boston Consulting Group, the start-up costs alone of an SRO could fund an enhanced SEC examination program for an entire year.

NASAA also believes that the existing division of federal and state regulatory responsibility over investment advisers should be preserved. For over 70 years, NASAA wrote, the SEC and state securities regulators have had concurrent regulatory authority over the investment adviser industry. The SEC has an experienced examination staff with industry expertise and established enforcement mechanisms, while state securities regulators have been effectively overseeing and regulating small and mid-sized investment advisers. NASAA observed that Section 914 of the Dodd-Frank Act mandated only that the SEC review and analyze its challenges in examining federally registered advisers. The 914 Study did not consider, or make recommendations regarding, state regulated investment advisers. The Investment Adviser Examination Improvement Act recognizes this important distinction and seeks to address the problem of SEC oversight by covering only federally registered investment advisers in the scope of the bill, NASAA wrote.