WASHINGTON -- Key lawmakers in the House and Senate have agreed to most of the provisions of a pending bill that would strengthen the Securities and Exchange Commission's regulation and enforcement of investment advisers.
But the bill, which was passed by the House on Wednesday and must now be approved by the Senate, has little chance of being enacted unless Sen. Phil Gramm, R-Tex., can be persuaded to abandon an attempt to attach two unrelated but controversial housing provisions that would kill the measure, sources say.
Both provisions are opposed by Rep. Henry Gonzalez, the Texas Democrat who chairs the House Banking, Finance, and Urban Affairs Committee. One provision would keep in place federal rules preempting a Texas constitutional provision that does not currently permit Texas home owners to take out home equity loans on primary residences. The other would permit demolition of certain public housing projects in Texas.
If Gramm supports the investment advisers bill without these two provisions, Congress will probably adopt the measure after some four years of debate on these issues, the sources said.
A key aim of the bill is to increase investment advisers' registration fees, which would provide the SEC with more money to inspect advisers for compliance with securities laws, the sources said.
Since 1981, the number of investment advisers has soared to 22,000 from 5,100, with assets under their management increasing to $9.3 trillion from $450 million. At the same time, however, the SEC staff assigned to inspect these advisers has increased by only 15, to total 51 inspectors.
Currently, the SEC charges a one-time $150 registration fee for investment advisers. But the bill would require the SEC to charge annual fees based on a sliding scale that corresponds to assets. The fees would range from $300 to $7,000 based on assets ranging from $10 million to $500 million.
The bill would also:
* Require the SEC, within three years, to conduct a survey to determine how many investment advisers are not registered. The SEC would be authorized to propose how to register them.
* Allow the SEC to delegate the authority to inspect and examine investment advisers to a self-regulatory organization like the National Association of Securities Dealers.
* Require the SEC, within a year, to conduct a review of potential conflicts of interest between investment advisers and their clients. The SEC would be authorized to write rules that would require such conflicts to be fully disclosed.
* Create a "filing depository" or central location within the SEC where investment adviser applications and reports can be filed and made accessible to the public.
* Establish some sort of hot line or other "telephonic or electronic process" whereby members of the public can get information about disciplinary actions that have been taken against investment advisers.
* Require the SEC, within its next three annual reports, to describe its efforts to revise the registration application form for advisers and how the revisions will result in disclosures of potential conflicts and other information.
* Authorize the SEC to require investment advisers to post a bond that would serve as a source of funds for clients who are defrauded through larceny or embezzlement. The SEC would be required to exempt advisers from this requirement if such a bond was not readily available or was too costly.
The bill's key sponsors include Rep. John Dingell, D-Mich.; Rep. Edward Markey, D-Mass.; Rep. Rick Boucher, D-Va.; and Rep. Jack Fields, R-Tex., in the House; and Sen. Donald Riegle, D-Mich.; Sen. Christopher Dodd, D-Conn.; and Sen. Alfonse D'Amato R-N.Y., in the Senate.
Although legislative proposals to amend the Investment Advisers Act have been kicking around Congress since 1990, they got a boost last year after California investment adviser Steven Wymer was convicted by a federal court of defrauding local governments and agencies out of more than $100 million.
