SEC’s Gallagher: Pay for your own exams

The SEC commissioner wants third-party contractors to conduct exams on registered advisors’ dime.

Registered private fund advisors should pay for their own examinations, the Securities and Exchange Commission’s (SEC) Daniel Gallagher reportedly said at the Financial Industry Regulatory Authority’s (FINRA) annual conference.

Gallagher recommended the SEC create a rule that requires registered advisors to hire an examiner – either a third-party contractor or self-regulatory organization (SRO).

SROs and other firms (such as auditors) competing for GPs’ business would ultimately bring the price of exams down, Gallagher reportedly argued. “That will be a much more competitive and efficient marketplace.”

Gallagher is one of five SEC commissioners. He would need the support of at least two other commissioners to formally propose the rule.

SEC chairman Mary Jo White has given signals she would support such a move. During questioning at a recent House Financial Services Committee hearing, California Democrat Maxine Waters asked White whether or not levying user fees from investment advisors was a “scalable and usable” way for the commission to improve investor protection.

White’s response was that the SEC’s examination program was a top priority for the agency and that the SEC’s current resources aren’t close to what the SEC requires.

“In respect of user fee proposals that have been made in Congress, my priority is to have the funding to carry out my job which I do not have now,” said White.

This is not the first time a government official or policymaker has floated the idea of GPs paying for their own exam, but none have made significant headway to date.

Legislation to impose user fees on registered advisors was introduced in the lower chamber of Congress last April. Waters introduced a bill that would allow the SEC to collect an annual fee from advisors subject to inspections in lieu of an SRO.

That bill stalled in committee and is only receiving a one percent likelihood of becoming enacted, according to estimates made by, a legislative tracking website.

And in November the Investment Advisory Committee, mandated by Dodd-Frank to advise the SEC on new rulemaking, backed charging investment advisors for examinations.