Lawmakers urge SEC to drop exam fees

Prominent House Republicans are urging the US Securities and Exchange Commission (SEC) to reconsider charging exam user fees, suggesting instead that the agency reallocate existing resources in order to increase registered investment adviser (RIA) examinations.

A few SEC officials, including Rik Fleming who oversees the new “Office of the Investor Advocacy” and SEC commissioner Daniel Gallagher, have been urging Congress to allow the agency to begin charging registered fund advisors for their own inspection exams.

Jeb Hensarling, chairman of Committee on Financial Services, and Scott Garrett, Chairman of the Capital Markets Subcommittee, penned a November 24 letter requesting a written answer from the SEC by December 5. The lawmakers have yet to receive a response from the agency, a spokesperson from the Financial Services Committee told pfm.

In the letter, the congressmen question whether the practice of collecting user fees from RIAs is the most cost efficient option, citing the potential economic impact of the fees on advisers and their investors. The added cost would have a disproportionate impact on small and mid-sized RIAs and the costs would be passed along to investors in the form of higher advisory fees, the letter states.

While user fees are intended to fund additional staff at the Office of Inspections and Examinations (OCIE) in order to conduct more exams, the letter also questions whether adding examiners to the OCIE’s “already large staff” would result in an “immediate, material increase in the number of SEC examinations or the efficiency of such examinations.”

Instead of charging fees, the lawmakers urge the SEC to reallocate existing resources. The letter suggests shifting more of the responsibility of examining broker-dealers to the Financial Industry Regulatory Authority, as well as permitting the use of third-party examiners.

Hensarling and Garrett requested that the SEC’s response to the letter include plans to reallocate existing resources, a timeline to consider allowing third-parties to audit RIAs and figures for the average number of examinations per SEC examiner across all divisions for FY 2013 and FY 2014.

The letter prompted an immediate response from financial planner trade organization the Financial Planning Coalition (FPC) rejecting the lawmakers’ proposal. “We strongly disagree that merely asking the SEC to reallocate its stretched and inadequate resources or outsourcing examinations to third parties is the solution,” said the FPC in a statement.