Compliance April 19, 2013

Rep. Waters Introduces Bill to Boost Exams

Legislation introduced by Congresswoman Maxine Waters would give the Securities and Exchange Commission (SEC) the authority to impose user fees on investment advisers.
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A ranking member of the House Financial Services Committee, Maxine Waters (D-Calif.) has introduced the Investment Adviser Examination Improvement Act of 2013 (HR 1627), which would provide the SEC with a dedicated funding source to strengthen adviser oversight.

“Public confidence in our financial markets has deteriorated” since the financial crisis, Waters said in a release, and inadequate funding levels are the reason. (See “Budget Puts the Squeeze on Adviser Exams.”)

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Even though the vast majority of investment advisers operate with integrity, Waters said she felt it is clear that the SEC’s current examination levels need to be boosted in order to restore public trust in the financial marketplace.

Waters called the user fee the simplest and most direct method for achieving the desired result, which is “improved quality and quantity of these exams, and another step towards restoration of public confidence in our markets.”

Opinions of the bill vary, but of course, even the definition of “adviser” does not mean the same thing to everyone. According to James Sampson, a principal with Cornerstone Retirement Advisors LLC, confusion still abounds about the difference between wealth advisers and retirement plan advisers. “They still look at me strange when I tell them I don’t have a trade blotter, because I don’t place trades,” Sampson told PLANADVISER.

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“I get plenty of scrutiny from the broker/dealer side of things, and I know my RIA, which is affiliated through my broker/dealer, LPL, does as well, as they recently completed a very thorough audit.” Sampson said he has no problem with the SEC performing exams.

The Investment Advisor Association (IAA), the trade association for investment advisers, approved the legislation as providing “a stable source of funding to SEC to be used for the sole purpose of enhancing investment adviser examinations” without taxpayer dollars.

“Increasing adviser examinations is good for both consumers and advisers,” said the Financial Planning Coalition, which comprises the Certified Financial Planner Board of Standards Inc. (CFP Board), the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA). 

“Investment advisers play a huge role in the financial lives of millions of Americans, and we should make sure that they’re acting properly,” said Rep. John K. Delaney (D-Md.), a member of the House Financial Services Committee and an original co-sponsor of the legislation. “In a time of tight budgets … [t]his legislation would allow the SEC to improve oversight and help protect investors.”

Congress recognized the problem of inadequate investor adviser oversight when it enacted the Wall Street Reform and Consumer Protection Act of 2010, which tasked the SEC with studying the best approaches for improving the investment adviser examination system. 

The bill would also preserve the expanded role of state securities regulators provided under the Dodd-Frank Act, which directs the SEC to focus on large advisers—those with more than $100 million in assets under management.

Data & Research April 19, 2013

Mass Affluent Go It Alone

Five years after the financial crisis, Main Street investors remain pessimistic about their finances and don’t feel wealthy enough to require financial advising services.
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According to the “2013 Mass Affluent Investor,”a Spectrem Group study, even though their net worth is estimated between $100,000 and $1 million, not including a primary residence, a majority of the mass affluent feel they have not built enough wealth to achieve goals like a comfortable retirement. At the same time, people in this economic group tend to be reluctant investors who report a low tolerance for risk.

Mass affluent investors are significantly less likely than millionaires to seek out the counsel of a financial adviser because of perceived risks, yet they could derive great benefits from financial advice, noted George H. Walper Jr., president of Spectrem Group.

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This failure to seek advice leaves them vulnerable to running out of money in retirement and falling short of other financial goals. “Considering the mass affluent represent some 28.4 million U.S. households, the problem has broad societal implications,” Walper said.

 

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Highlights from the “2013 Mass Affluent Investor” include:

  • Prevailing Pessimism: Fewer than half indicate their finances are in better shape now compared to a year ago and only 46% expect their situation to improve in the coming year.
  • Lone Rangers: Roughly one-fourth works regularly with a financial adviser. At the same time, less than one-third wants to be actively involved in the day-to-day management of their finances and a large share say they have little or no investment knowledge.
  • Risk Averse: Less than one-third is willing to take significant risk with portion of their investments, and 21% says they regret not investing more conservatively in the years leading up to the financial crisis.
  • Retirement: More than 40% are unsure of having sufficient income to live comfortably in retirement, and 40% plans to work past the age of 65. Close to 40% of those younger than 54 say their household is not saving enough.
  • Concerns: The mass affluent are primarily worried about maintaining their own financial position, but close to 60% are worried of the financial situation of children and grandchildren, and more than half indicate they are caring for aging parents. The economy, political environment, tax increase, inflation and national debt are also weighing on their confidence.

Additional information and more insights are available at Spectrem’s Millionaire Corner.

Spectrem Group, located in Lake Forest, Illinois, analyzes its ongoing primary research with investors to assist financial providers and advisers in understanding the voice of the investor.  

 

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