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WASHINGTON (June 6, 2012) – Legislation to create a self-regulatory organization (SRO) for investment advisers would add redundant regulation and costs on thousands of small businesses in communities throughout the United States that could force many of these local firms to close their doors, the North American Securities Administrators Association (NASAA) told the House Financial Services Committee today.

Texas Securities Commissioner John Morgan said state securities regulators are “extremely concerned” about the impact the legislation would have on state-registered investment advisers and the clients they serve. “In short, the most urgent problem with this legislation is that it has the very real potential to be a job killer,” he said during a hearing on H.R. 4624, the “Investment Adviser Oversight Act of 2012.” Morgan’s testimony is available on the NASAA website here.

Morgan said state securities regulators share the Committee’s concern regarding the oversight and examination of federally registered investment advisers. “NASAA recognizes these problems place investors at risk, and agrees that Congress should act to address them,” Morgan said. “Crucially, however, no similar gap exists with respect to investment adviser regulation in Texas, nor in the overwhelming majority of states.”

Currently, state securities regulators oversee investment advisers with assets under management of less than $100 million. Larger investment advisers are regulated by the federal Securities and Exchange Commission (SEC). H.R. 4624 embraces a “one size fits all” approach to regulation, Morgan said. The bill will require some federally registered investment advisers and most state-registered investment advisers to become members of an SRO, pay membership fees to the SRO, comply with its rules, and be subject to inspection by the SRO.

“As a matter of policy, investment adviser regulation is a governmental function that should not be delegated to an SRO,” Morgan said. “Above and beyond NASAA’s concerns with the SRO model and its application to investment adviser regulation, state securities regulators are adamantly opposed to H.R. 4624 because we believe it would subordinate state regulators to an SRO, impose redundant regulation and new costs on small and mid-size investment advisers that are impossible to justify, and very likely put many of the small firms that we regulate out of business,” Morgan said.

Most state registered investment advisers are small businesses employing only a few people. As introduced, H.R. 4624 would threaten the financial viability of these small businesses in Texas and across the country by creating an unnecessary, expensive, and duplicative layer of regulation, Morgan said.

“The economics for many state-registered investment advisers indicate that it is perilous for these firms to bear the weight of another layer of costs, particularly when it is unnecessary to impose such costs,” Morgan said.

Morgan noted a survey of Massachusetts investment advisers released last week by Secretary of the Commonwealth William Galvin. Over half of the 649 investment advisers registered in Massachusetts responded to the survey, and of those who responded, 41 percent volunteered comments suggesting that they would be forced out of business if H.R. 4624 bill passes in its current form. “The message I am hearing from investment advisers in Texas is the same message Secretary Galvin is hearing in Massachusetts: H.R. 4624, in its present form, has the very real potential of being a job killing bill for these small and mid-sized firms,” Morgan said.

He said NASAA believes the best way to improve oversight of federally registered investment advisers is to provide the SEC with the resources needed to do the job, either through increased appropriations or by authorizing the SEC’s Office of Compliance Inspections and Examinations to collect user fees from the investment advisers it examines – an alternative preferred by the SEC staff in its January 2011 study mandated by Section 914 of the Dodd-Frank Act.

“As a matter of efficiency and cost, authorizing the SEC to fund enhanced oversight of federally registered investment advisers through the imposition of user fees also makes more sense than establishing a new SRO for investment advisers,” Morgan said.

“NASAA remains strongly opposed to H.R. 4624 in its present form, without significant changes,” Morgan said. “We look forward to working with Congress to arrive at a legislative solution that maintains appropriate oversight of investment advisers.”



Bob Webster
Director of Communications

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