Page 33 - Investment Advisor April/May 2023
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THE PLAYING FIELD
By Melanie Waddell
RIA Growth Continues to Outpace SEC
Exam Resources
As with the Dodd-Frank Act, Congress will have to take action to help
increase exam frequency of investment advisors, says Michael Canning
of the LXR Group.
he Securities and Exchange principal place of business or have more
Commission’s ability to oversee than a de minimis number of clients,”
Tthe growing number of regis- Roye said.
tered investment advisors has come to “There were over 35,000 investment
the fore once again. advisors in the United States” as of 2021,
The topic was debated at a recent with almost 375,000 investor advisor rep-
meeting of the SEC’s Investor Advisory resentatives, he continued. “Investment
Committee, with industry and SEC offi- advisory firms manage almost $129 tril-
cials grappling with how to handle this lion, and serve over 65 million clients.”
ongoing challenge for the agency. While Since 2016, Roye said, “the number of
some officials believe more funding will SEC-registered advisors has increased
do the trick, others see Congress having 25% to over 15,000, and this is a growth
to step in — once again — to try and rem- rate that far outpaces SEC’s staff increas-
edy the problem. es. Over the same period, the SEC exam
Paul Roye, former senior vice staff has increased only 4%.”
[“Since 2016,] the president of Capital Research and In 2021 alone, “900 new advisors reg-
number of SEC- Management Co., and a former head istered with the SEC,” he explained.
of the SEC’s Division of Investment
“The largest increase in SEC-registered
registered advisors Management, explained at the meet- entities has occurred in the investment
ing that, unlike broker-dealers, there’s
advisory industry.”
has increased 25% to no self-regulatory organization to assist Roye added this growth “is due, at
over 15,000, and this the SEC in overseeing the investment least in part, to many in the broker-deal-
er industry migrating to the investment
advisory industry. Thus, the SEC and the
is a growth rate that states “are the only entities conducting advisor industry.” Since 2012, the num-
far outpaces SEC’s exams of investment advisors.” ber of broker-dealer firms has declined
In 2022, Roye said, the SEC exam-
18%, he said.
staff increases. Over ined 15% of RIAs. The RIA exam rate “does not fully capture the increasing
The growth in the number of RIAs
has remained mostly stable since 2019,
the same period, the according to SEC reports. In contrast, complexity of the investment manage-
SEC exam staff has the SEC and the Financial Industry ment industry, whose firms are developing
Regulatory Authority “together exam-
more sophisticated trading and investing
increased only 4%.” ined nearly half of registered broker- strategies, and this results in increasing
dealers,” Roye, a member of the Investor
complexity of the compliance issues and
—Paul Roye Advisory Committee, said. risks covered by examinations,” he stated.
Under the Dodd-Frank Act, advisors In his remarks at the Investor Advisory
with at least $100 million in assets under Committee meeting, SEC Commissioner
management must register with the Jaime Lizarraga, a Democrat, noted that
SEC. Advisors with fewer assets must investment advisors “provided asset
register in the states “where they have a management services to 47.3 million
APRIL/MAY 2023 INVESTMENT ADVISOR 31
