July 27, 1990
TO: INVESTMENT ADVISER MEMBERS NO. 37-90
INVESTMENT ADVISER ASSOCIATE MEMBERS NO. 33-90
RE: COMMISSIONER SCHAPIRO TESTIFIES ON PROPOSED INVESTMENT
ADVISER LEGISLATION
__________________________________________________________
SEC Commissioner Mary Schapiro testified on July 18th on
The Investment Advisors Disclosure and Enforcement Act of 1990
(H.R. 4441) before the Telecommunications and Finance
Subcommittee of the House Energy and Commerce Committee.
Attached is a copy of the testimony.
Commissioner Schapiro testified that while the Commission
supports the objectives of the bill, there were a number of
provisions that should be modified. She expressed support for
creating a private right of action for violations of proposed
provisions that would require an adviser to have a suitable basis
for its recommendations and that would prohibit an adviser and
its employees from making any misrepresentations or omissions
about its qualifications, services or fees. However, she stated
there should not be a private right of action for violations of
provisions that would require certain disclosures to clients such
as disclosure that advisory fees will be offset by commissions.
Schapiro stated that with respect to the bill's expansion
of regulation to cover additional financial planners, the
Commission does not support regulating persons who do not give
advice about securities. In addition, while supporting the
objectives of the proposed disclosure requirements in the bill,
Schapiro testified that the Commission should implement those
objectives through rulemaking instead of including detailed
disclosure requirements in the statute.
In addition, Schapiro commented on the Commission's
proposal submitted to Congress last year to create an adviser
SRO. Her testimony indicates that the Commission is
reconsidering its position on the SRO concept. She testified
that direct Commission regulation is preferable to a self-
regulation scheme. However, if the Commission's resources are
not increased, the creation of an SRO should still be considered.
Schapiro also commented on the GAO's study on SEC
regulation of the investment adviser industry. (See Memorandum
to Investment Adviser Members No. 32-90 and Investment Adviser
Associate Members No. 29-90, dated July 18, 1990.) She
vigorously defended the Commission against any implication raised
in the report that the Commission is not doing an exemplary job
within its existing budgetary constraints. Schapiro noted that
the concerns raised by the report resulted from defects in the
Advisers Act and the inadequacy of the Commission's resources.
We will keep you informed of developments.
Amy B. Rosenblum
Assistant General Counsel
Attachment