Views on improving the integrity of global capital markets
02 December 2010

SEC and RIAs: A Love-Hate Relationship

Posted In: US SEC

We survey members a lot at CFA Institute because the responses are generally well considered and focused on the ethical high road. We expected nothing different last month when we asked U.S. members in asset management what they thought of the U.S. SEC’s oversight of registered investment advisers (RIAs) and whether they thought a change was needed to that arrangement. What we received (PDF) forced us to do a double take.

Of the more than 1,300 members who responded, 65 percent said they did not believe the SEC was doing “an adequate job” regulating RIAs. On a stand-alone basis, this really shouldn’t surprise anyone given what has happened in recent years.

On a stand-alone basis, too, the 57 percent who said the SEC was the preferred agency to regulate RIAs in the future wasn’t surprising, either. Members and non-member RIAs, alike, have consistently expressed a similar preference over the years.

Taken together, however, the answers seem contradictory. Members think the SEC is doing a lousy job, yet they want to keep the Commission on the beat. What gives?

At the risk of putting words into members’ mouths, the results appear to suggest that in a world of limited options, the regulator that asset managers already know and are set up to deal with, is preferred to enduring a major transition. The potential upheaval that might come with a FINRA takeover of RIA regulation, from changes in exam personnel, processes, and procedures, to the costs associated with revamping compliance efforts, is not an attractive prospect. Moreover, there is little certainty any such switch would actually improve oversight. Better perhaps to leave things as they are and ensure the SEC has adequate financial and human resources to do a better job. That seems pretty well considered after all.

About the Author(s)
Jim Allen, CFA

Jim Allen, CFA, is head of Americas capital markets policy at CFA Institute. The capital markets group develops and promotes capital markets positions, policies, and standards.

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