One of the SEC’s functions is to examine investment advisers to ensure compliance with federal law and SEC rules. This segment of the market has been steadily increasing over recent years. In particular, there has been a shift away from brokers towards investment advisers. Ten years ago there were approximately 9,000 investment advisers managing $28 trillion in assets. Current predictions for the 2017 fiscal year suggest that these numbers will increase to 12,500 investment advisers managing more than $70 trillion in assets. The SEC is currently severely understaffed to handle this increased load.
Ten years ago the SEC was in a far better position to examine the number of registered investment advisers. At that time, there were approximately 17 staff members per trillion dollars. Currently, there are only 8 staff members per trillion dollars. Furthermore, in the 2015 fiscal year, the SEC was required to conduct risk-targeted exams and only examined a total of 10 percent of all registered investment advisers. These firms managed only 30 percent of the total assets of all investment advisers. In fact, about 40 percent of all investment advisers have never been examined.
Recently, the SEC proposed to increase its funding to a total of $1.781 billion for the 2017 fiscal year. With the increase in funding the SEC plans to employ 127 additional investment adviser examiners. Coupled with this increase in examiners, the SEC plans to increase the number of enforcement staff members (accountants, attorneys, IT personnel) by 52 in order to enhance that function of the SEC. The SEC believes the new positions would be able to augment its examinations and enforcement capabilities in the face of increased demand.
Accordingly, advisory firms who have never been examined can expect a visit from OCIE in the coming years.