“Disaster” Looms in Dearth of Small-Advisor Exams: Former SEC Chair
The Securities and Exchange Commission’s inability to examine registered investment advisors is a “disaster waiting to happen,” former SEC Chair Mary Jo White warned on Friday.
Even after bulking up resources for RIA oversight, the agency examines of small advisory firms annually. That contrasts with some 50% of broker-dealers that are vetted annually by the Financial and Industry Regulatory Authority and state regulators, through delegated authority by the SEC.
“It’s a real problem that keeps me up at night,” White said in a keynote address in New York at the Practicing Law Institute.
White, who resigned in January after four years as the Obama administration’s chief securities regulator, said her budget-constrained exam staff had left behind an “essentially done proposal” to hire a “sufficiently independent” third party to vet RIAs. Current SEC Chairman Jay Clayton and his staff do not appear interested in picking up the third-party RIA exam plan, she said.
White didn’t identify what firm she would have hired, but said that her choice would not have been Finra, which is financed by securities industry firms and which had vied to expand its jurisdiction to independent advisors.
In a September , Clayton expressed confidence that he could boost the examination rate to 14% to 15% of RIAs annually, but backed away from his predecessor’s plan.
“It’s not a bad idea, but it’s not front of my mind right now,” Clayton said. “I’m comfortable we’re making progress in that space.”
White was complimentary of many of the initiatives that Clayton has put in place, including his commitment to work on designing a uniform fiduciary standard that would apply to brokers and financial advisors. Her inability to to ensure that brokers work in the best interest of their clients remains the biggest disappointment of her regime, she said.
Her efforts were stymied by the complexity of the endeavor and by the fact that there were two vacancies among the SEC’s five commissioners by the end of her term. Her two colleagues both opposed the effort.
“I’m very pleased to see Chairman Clayton embracing this, and I know that he appreciates the difficulties,” White said. “He is soliciting fresh comment and really wrestling with how to do that.”
She noted the broad-based efforts of the Trump administration to roll back regulation but did not offer an opinion on the current Department of Labor’s reconsideration of its fiduciary rule for retirement accounts.
The rule went into partial effect in June but the agency has delayed implementation of the rule’s primary enforcement mechanisms.