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Subcommittee to Review Broker-Dealer Standard of Care and Reforms to Improve Investment Adviser Oversight


Washington, Sep 12 -

The Capital Markets and Government Sponsored Enterprises Subcommittee, chaired by Rep. Scott Garrett, will convene for a hearing to evaluate the need for a new standard of care for broker-dealers and a legislative proposal aimed at improving the oversight of  investment advisers.

Section 913 of the Dodd-Frank Act authorized but did not require the Securities and Exchange Commission to issue rules that address the standards of care for brokers, dealers, and investment advisers that provide personalized investment advice about securities to their retail customers.  While the SEC staff recommended in a study mandated by Section 913 that both broker-dealers and investment advisers be “expressly and uniformly” held to “a fiduciary standard no less stringent than currently applied to investment advisers under the Advisers Act” when “providing personalized investment advice about securities to retail customers,” the SEC staff did not expressly determine whether broker-dealers’ customers were receiving less protection.

The Subcommittee will also review section 914 of the Dodd-Frank Act, a provision directing the SEC to study ways to enhance oversight of investment advisers. Financial Services Committee Chairman Spencer Bachus released a discussion draft on September 8 to improve the regulation of retail investment advisers. The discussion draft, which adopts a recommendation made in a study by the SEC staff required by Section 914, authorizes the creation of national investment adviser associations (NIAAs) to oversee retail investment advisers. NIAAs will be registered with and overseen by the SEC.  Under the discussion draft, retail investment advisers would be members of a registered NIAA.  The NIAA would have the ability to examine and discipline its members for violating rules proposed by the NIAA and approved by the SEC after public notice and comment.

“During the Dodd-Frank debate, I expressed concerns that the Democrats were creating more regulatory loopholes and the opportunity for regulatory arbitrage by ignoring the low SEC examination rates for investment advisers. My bill will help ensure there is consistent and effective regulation of broker-dealers and investment advisers,” said Chairman Bachus.

Capital Markets and Government Sponsored Enterprises Subcommittee Chairman Scott Garrett said, “There has been a lot of discussion recently about the quality of the SEC’s cost-benefit analysis when pursuing new regulations.  This hearing will be a good opportunity to hear from industry about the study conducted by the SEC regarding the potential need for a uniform fiduciary standard.  Before any discretionary rulemaking in this area might be undertaken, however, the SEC will need to do a much better job demonstrating with real data that a new regulation would be addressing a problem that actually exists.  In addition, I’m looking forward to the opportunity this hearing presents to have a vibrant discussion about Chairman Bachus’ draft bill to set up an SRO for investment advisers.”

In a recent study, the SEC staff found that while the number of investment advisers has increased by approximately 38.5 percent since 2004, the number of advisers examined decreased by 29.8 percent. While 18 percent of registered investment advisers were examined in 2004, only 9 percent of registered investment advisers were examined in 2010. A separate study by the SEC found that more than 11,000 investment advisers are registered with the SEC, managing more than $38 trillion.

The Subcommittee hearing will take place on Tuesday, September 13 at 10 am in room 2128 Rayburn.