SEC Investor Advocate Fleming Argues for Annual Investment Adviser User Fees
Commentary by Steven Lofchie
SEC Investor Advocate Rick A. Fleming delivered remarks at the Annual Southwest Securities Conference regarding the recent Office of the Investor Advocate Report to Congress, which contains upcoming priorities and a recommendation to authorize the SEC to collect annual user fees from registered investment advisers.
According to Mr. Fleming, the basic purpose of the Investor Advocate is to ensure that the concerns of investors are appropriately considered when decisions and policies are made at the SEC. Part of this process includes the filing of two Reports per year directly to Congress from the Office of the Investor Advocate, the first of which was filed on June 30, 2014.
Mr. Fleming explained that the Report described the six core issues that his office will focus on in the upcoming federal fiscal year, which he summarized as follows:
- issues surrounding equity market structure, and whether today's markets are fair to investors;
- whether investors have fled from equity markets due to fear related to those markets;
- the fixed income market, especially the municipal bond market;
- the efforts of the SEC, exchanges and market participants to prevent market disruptions from hackers and electronic terrorists, and the protection of the assets and private information of investors;
- possible ways to make financial disclosures by public corporations more effective for investors; and
- areas of elder abuse.
Additionally, Mr. Fleming noted that the Report included a recommendation that Congress "provide sufficient resources to the SEC to conduct an adequate number of investment adviser examinations." According to Mr. Fleming, the number of investment advisers and their complexity has grown enormously over the past decade, while the staff of the SEC Office of Compliance Inspections and Examinations has experienced little growth.
Although Mr. Fleming suggested to Congress that they appropriate the needed funds this year to allow the SEC to hire more examiners, he also recommended the long-term solution of authorizing the SEC to collect an annual "user fee" from registered investment advisers, and to limit the use of those funds to expenses associated with investment adviser examinations.
Mr. Fleming admitted that many people might object to a user fee, but stated that it is important to note that the fee would not increase the budget deficit "because the increased spending would match the revenue received from advisers." Additionally, he stated, the idea of user fees makes sense from a public policy perspective, since alternative solutions, such as third-party audits of advisers, would be more expensive and burdensome in the long run.
Commentary
What possible benefit can come of the Investor Advocate's review of the equities market? Why is it efficient for the Advocate's office to research issues of equity structure when the SEC's Division of Trading and Markets, as well as numerous academics and economists, are already looking at this? Given that the Division of Trading and Markets brings special expertise to this area, isn't it completely wasteful for the Investor Advocate to undertake the same task? Likewise, the Division of Trading and Markets, as well as MSRB, are focused on municipal bond issues. In fact, MSRB just proposed a new rule on best execution. This duplication of effort raises the question of why there should be an Office of the Investor Advocate within the SEC; isn't advocating for investors one of the SEC's preexisting jobs? As for the request for the imposition of fees, it is irksome that money should be spent so inefficiently, without regard to the other activities carried out by the organization in which the Investor Advocate is housed.