WASHINGTON -- Investment advisors and brokers remain a key area of concern for SEC regulators, with the agency's head telling a House panel that she plans to advance a proposal for potentially expanding fiduciary responsibilities later this year.
In testimony before the House Financial Services Committee, SEC Chairman Mary Jo White also lamented the commission's inadequate oversight of the RIA sector amid limited resources and an understaffed team of examiners, telling lawmakers on Tuesday that she hopes to expand the examination staff through a 2015 fiscal year appropriation.
"Now more than ever we need a strong, vigilant and adequately resourced SEC," White said. "Importantly, our budget request would permit the SEC to increase its examination coverage of investment advisors who every day investors are increasingly turning to for investment assistance for retirement and family needs."
The SEC is seeking an appropriation of $1.7 billion for the next fiscal year, up from the $1.35 billion the agency received in 2014.
FIDUCIARY REFORM
White seemed to hedge in her commitment to enacting a uniform fiduciary duty that would apply in equal measure to broker-dealers and advisors, though she indicated that that proposal remains on the table, along with a menu of other options.
White, who in the past has spoken forcefully on the need to address the disparate standards of care that apply to financial professionals serving retail clients, told lawmakers she is working actively within the commission to craft a proposal for reform without predicting what the final rules would look like.
"Speaking for myself, I think this is an extraordinarily high priority for the commission," she said. "What I have done is to prioritize that issue within the staff because of how important I think it is. And they have come back to me and I've gone back to them on sort of the various range of options and considerations. It is a priority of mine to have the commission reach [a resolution to] this very important issue in this year."
White also faced questions from lawmakers of both parties about a separate proceeding underway at the Department of Labor, which is considering expanding fiduciary obligations to advisors working with retirement plans and individual workers. The SEC chair took pains to note that while the two agencies are working under distinct statutory authorities, she has discussed the issue with Labor Secretary Thomas Perez over two face-to-face meetings and a phone call, and their respective staffers have been in regular contact to ensure that the twin rulemakings do not produce overlapping or conflicting requirements for advisors, as some industry groups have cautioned against.
"At the end of the day they're obviously a separate agency than we are, but I understand the consistency concern," White said. "I've ratcheted it up, if I could say it that way, the discussions between our staffs."
SOARING AUM
White's testimony comes as the SEC is juggling multiple rulemaking proceedings stemming from the Dodd-Frank and JOBS Acts, while also grappling with steep upticks in trading volumes and assets under management in regulated sectors like RIAs, as well as an increasingly complex set of financial products and business practices.
The SEC estimates that since 2001, advisors' AUM have soared nearly 200% to $55 trillion. In 2004, the SEC had 19 examiners per $1 trillion in advisors' AUM, according to White. Today, the commission has just eight for each trillion in AUM, she told the committee.
And in the 2013 fiscal year, the SEC examined just 9% of the registered advisors under its purview, White said. That oversight translated into 964 examinations of RIAs, and 140 actions filed against advisors.
"More coverage is clearly needed, as the industry itself has acknowledged," White said. "There's no question in my mind that one of the most significant resource challenges we face is investment advisor examinations."
The hearing was far-ranging in scope, with White fielding questions on an array of other initiatives underway at the commission, including proposals to implement new measures to help stabilize money market funds. The SEC is considering two proposals that it could adopt individually or as a pair. One would float the net asset value of prime institutional funds; the other would introduce liquidity fees and redemption restrictions known as "gates" to guard against runs on the funds.
In written testimony, White said that "adopting a final rule in this area is a priority for the commission in 2014," though she was less inclined to be pinned down when questioned by members of the committee.
"It is in active discussion between the staff and the commissioners," she said. "Expect it to reach a final stage in the near term. I don't want to be any more specific on that, but we're working very hard on it."
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