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Study Says SEC Should Outsource Investment Advisor Examinations

James Angel

Finance scholar James Angel's “On the Regulation of Investment Advisory Services: Where Do We Go from Here?” examines recent proposals to improve the oversight of registered investment advisors.

December 9, 2011 – The U.S. Securities and Exchange Commission should outsource routine examinations of investment advisors, suggests a new study by a Georgetown McDonough School of Business professor.

The study, “On the Regulation of Investment Advisory Services: Where Do We Go from Here?” by associate professor of finance James Angel examines several recent proposals to improve the oversight of registered investment advisors.

The SEC recently noted that it examines advisors only about once every 11 years.

Private Industry

“Outsourcing routine examinations to private industry will result in more frequent examinations and will stretch limited SEC resources that can be used elsewhere,” Angel said. “It also would provide the benefits of competition in the provision of examination services.”

He says independent accounting or consulting firms and self-regulatory organizations could conduct the examinations instead of the SEC.  

Not Mandatory

But the professor does not see the need mandatory self-regulation for the adviser industry.

“Self-regulatory organizations such as FINRA do a lot more than just examine their members,” Angel explains. “They also write rules, set standards, and enforce them. So far no one has documented a need for anything other than more frequent examinations to make sure that the advisers are in compliance with our securities laws.”    

The study, funded by a grant from TD Ameritrade, can be downloaded.

Angel researches the structure and regulation of financial markets at Georgetown. His courses include Financial Markets, Corporate Finance, and The Great Books in Finance.

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