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More RIAs May Leave SEC’s Oversight

January 12, 2015

Among other aims, the Dodd-Frank financial-reform law of 2010 was passed to help federal regulators do a better job of spotting financial fraudsters like Bernard Madoff.

The legislation raised the minimum asset level at which RIAs are subject to oversight by the SEC — as opposed to the state — from $25 million under management to $100 million. This removed about 2,100 firms from the federal watchdog’s inbox and assigned them to agencies in states where they do business.

Now RIA in a Box says the bar should be hiked to $500 million. This, the compliance outsourcer argues, would get a further 7,250 RIAs out of the SEC’s purview and let the agency concentrate on the remaining 4,000 or so (which, one imagines, are likelier than small fries to include the next headline-grabbing Ponzi schemer). Further, the vendor says firms under state supervision will get examined more thoroughly and with greater sensitivity — and extra costs to state governments will be offset by RIA registration fees that won’t cost as much as some proposals under review.

But RIA in a Box’s suggestion isn’t winning instant plaudits, according to InvestmentNews.

The Investment Adviser Association, a lobby group for RIAs, seems to think it attempts too much too soon — for state regulators especially. “Although states have responded positively to the growth in their authority, it is probably too early to assess their capability to handle another large influx of advisors,” an IAA representative tells the publication.

The states, as represented by the North American Securities Administrators Association, will review “the study’s recommendations,” InvestmentNews reports.

But economic reality may force bigger RIAs on the states, according to the newspaper. Dodd-Frank puts pressure on the SEC to get under the hoods of more firms, but some say Congress doesn’t give it enough money to comply. This leaves interested parties to debate a couple of contentious possibilities.

One is to have the SEC charge user fees for exams — at an average annual cost, says one study, of at least $27,300 per firm. Another — under consideration by the SEC, according to agency chair Mary Jo White — calls for RIAs to pay private-sector players to conduct audits, which RIA in a Box says would cost firms that manage $500 million around $30,000 a year.

In contrast, RIA in a Box says pushing more firms under state jurisdiction would eliminate the need for per-exam user fees — as distinct from registration fees, which would still apply — and take pressure off the SEC to green-light commercial auditors.

By Thomas Coyle
  • To read the RIA in a Box article cited in this story, click here.