SEC Chief, Testifying Before Senate, Says Dodd-Frank Replaced 2,250 RIAs And $115 Billion AUM With 1,500 New RIAs Managing $3 Trillion

Thursday, February 14, 2013 12:28
SEC Chief, Testifying Before Senate, Says Dodd-Frank Replaced 2,250 RIAs And $115 Billion AUM With 1,500 New RIAs Managing $3 Trillion

Tags: compliance | Dodd-Frank | RIAs

SEC Chair Elisse Walter, in testimony prepared for the Senate today, does not have much new to say about a regulatory solution for RIAs, which was mandated when the Dodd-Frank Act was passed in July 2010. But she offers up a scary fact about the regulatory mess the agency is facing.

“Since the Act became effective, approximately 2,250 formerly SEC registered advisers have transitioned to state registration and approximately 1,500 advisers to hedge funds and private equity funds have registered with the Commission,” says Walter in prepared remarks. “These new adviser registrants report over $3 trillion in assets under management, while those that transitioned to state registration manage about $115 billion.”

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SEC Chair Elisse WalterDodd-Frank was expected to ease the burden of RIA regulation on the agency by switching RIAs with less than $100 million AUM to state regulation. Before the switch, the SEC regulated RIAs with more than $25 million AUM and states watched over smaller RIAs. However, in requiring hedge funds and private equity funds to register as investment advisors, Dodd-Frank requires the agency tooversee activities of RIAs responsible for $3 trillion of assets it previously was not required to watch.


The terrible truth is that the 1,500 new RIA registrants the SEC must oversee manage 30 times as much money as the 2,500 small RIAs, and these new RIAs are probably 30 times more complicated to inspect.


“Most of these new registrants had never been registered, regulated, or examined and many have complex business models, investment programs and trading strategies,” Walter says. “Commission staff, through our National Exam Program, has developed and begun implementing a program for these new advisers which includes outreach, examination, and, ultimately, where appropriate, written reports highlighting exam findings.”


With sequestration looming, the SEC chief is asking for more government funding. The agency is asking for a FY 2013 budget of $1.57 billion, which would be a big hike over its FY 2012 budget of $1.32 billion and allow the SEC to hire 676 new staff.


Walter had little new to say about how to regulate RIAs. She is asking for more data from the public and industry on whether a uniform fiduciary standard for RIAs and registered reps should be adopted.


“While we have extensive experience in the regulation of broker-dealers and investment advisers, we believe the public can provide further data and other information to assist us in determining whether or not to adopt a uniform fiduciary standard of conduct or otherwise use the authority provided under Section 913 of the Dodd-Frank Act,” according to Walter. “To this end, the staff is drafting a public request for information to obtain data specific to the provision of retail financial advice and the regulatory alternatives. The request aims to seek information from commenters – including retail investors, as well as industry participants – that will be helpful to us as we continue to analyze the various components of the market for retail financial advice.”

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