SEC Investor Advocate Urges Increased RIA Oversight

SEC Investor Advocate Urges Increased RIA Oversight

After his first fiscal year as the Securities and Exchange Commission’s Investor Advocate, Rick Fleming said he is still not ready to make policy recommendations on the issues in his agenda, with one major exception.

Fleming wants to increase the amount of registered investment advisors that the SEC examines every year, and wants Congress to give the SEC more money to do so. The SEC currently examines each RIA once every 10 years, which Fleming says it “simply inadequate” to protect retail investors from fraud, excessive fees or theft.

“As I’ve seen throughout my career, most investment advisers live up to their fiduciary duty to clients, but a few ‘bad apples’ can shatter the fragile retirement dreams of numerous clients,” Fleming said in his 2014 "Report on Activities."

“To a large degree, therefore, investors rely on the regulatory system to protect them from advisers who would violate their trust. Make no mistake – governmental examinations of advisory firms are a critical part of the regulatory structure upon which investors depend.”

Fleming wants the SEC to require advisers to pay an annual fee to fund additional examinations, and said that the wealth management industry is supportive of the plan. Congress would have to approve such a policy, but a bill died in the House this year after only one Republican supported it.

With its latest budget plan, Congress designated additional funds for the SEC. Fleming said he would advocate for those funds to be allocated toward RIA oversight, but added that the increase is unlikely to be enough to provide the coverage he believes is necessary.

“Therefore, we will assess any remaining need and will continue to explore potential efficiencies and funding mechanisms to further enhance investor protection in this area,” Fleming said.

Fleming was appointed Investor Advocate in 2014 in February by SEC chair Mary Jo White to fulfill a portion of the 2010 Dodd-Frank Wall Street reform law that required a watchdog office to spot problems, advocate for rule changes, help investors resolve problems with the SEC, and analyze how new rules will affect investors.

In the rest of the report, Fleming unveiled a list of the top practices and products that troubled investors in FY 2014.  

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