AICPA to Congress: SEC Should Keep Investment Adviser Oversight

June 13, 2012

The American Institute of CPAs laid out its opposition to legislation that would remove the U.S. Securities and Exchange Commission as the primary federal regulator of investment advisers in a letter to House Financial Services Committee Chairman Spencer Bachus and Ranking Member Barney Frank.  The June 6 letter was timed to coincide with the Committee’s hearing on the bill the same day and emphasized that preserving the SEC’s oversight of investment advisers is the best way to protect investors’ rights.

The Investment Adviser Oversight Act of 2012, introduced in the House of Representatives on April 25, 2012, would give the SEC the authority to create one or more self-regulatory organizations for investment adviser oversight.  In an immediate response, the AICPA on April 26 issued a public statement expressing its opposition to the Act and followed up with the June 6 letter. 

AICPA President and CEO Barry Melancon, CPA, CGMA said, “The bill would transfer oversight of investment advisers from the SEC to a Self-Regulatory Organization.  We oppose this move.”

Melancon said the AICPA believes that the “SEC’s core mission to protect investors requires adequate regulation of the investment advisory profession and that the SEC remains the proper regulatory body to protect the public’s best interest.”  In addition, the costs associated with paying fees to a self-regulatory organization may threaten the success of smaller firms, harming small businesses across the country.  About 20,000 investment advisers who are members of the AICPA would be affected.

The Dodd-Frank Act, in Section 914, directed the SEC to conduct a study to review and analyze the need for enhanced examination and enforcement resources of investment advisers.  On January 19, 2011, the SEC released its staff report, which concluded that the current SEC-registered investment adviser examination program faces significant capacity and funding challenges.  The staff report recommended three options to strengthen the existing program:

  1. Impose “user fees” on SEC-registered investment advisers that could be retained by the Commission to fund the investment adviser examination program;

  2. Authorize one or more SROs to examine, subject to SEC supervision, all SEC-registered investment advisers; or
  3. Authorize the Financial Industry Regulatory Authority (FINRA) to examine dual registrants for compliance with the Investment Advisers Act of 1940.

Melancon said “providing the SEC with resources to properly enforce their rules is the best solution for investors and the public.”  A study released by The Boston Consulting Group in December 2011 provided an economic analysis of the three options recommended by the SEC report.  The key findings of the Boston Group’s study found that funding an enhanced SEC examination program would likely cost half that of creating a SRO for investment advisers.  The report further found that funding a SRO would likely cost twice as much for each investment advisory firm as paying user fees to the SEC and that, given the SEC would still have to oversee the SRO, any cost savings to the SEC through creation of a SRO would be minimal.

A markup of the bill is expected in the House Committee on Financial Services sometime this summer.

For background about the fight the AICPA began in 2009 to protect investors’ rights by preserving the SEC’s oversight of investment advisers, see the AICPA’s December 10, 2009 letter to Congress, its November 24, 2010, comment letter to the SEC and its November 3, 2011 comment letter to the Members of the House Committee on Financial Services.