WASHINGTON -- The Senate Banking Committee approved legislation yesterday to strengthen federal regulation of financial advisers.
The measure, which now goes to the full Senate, would increase fees on advisers and require fidelity bonds for advisers with custody of, or discretion over, client assets.
The fee increases would allow the Securities and Exchange Commission to hire more inspectors to oversee the nation's 19,000 investment advisers which manage an estimated $8 trillion in accounts.
The measure, sponsored by Sen. Christopher Dodd, D-Conn., passed on a voice vote after some Republican committee members objected to it. Sen. Phil Gramm, R-Tex., called the bill "wrongheaded" and said it would inflict "minor harm on America's capital markets."
In May, the House passed a much broader bill, containing many new requirements that the Senate has not proposed. For example, the House bill would require investment advisers to recommend only suitable investments to clients. It would also require the SEC to target some of its examinations at riskier advisory firms, and advisers to make periodic reports to clients.
Group representing investment advisers oppose the House bill's requirement for periodic reports to clients. They warn that it would pose a major paperwork burden for smaller advisers and could confuse investors who already receive extensive statements on their investments.
Bills to tighten the regulation of financial advisers were introduced in the House and Senate last year, but members were unable to reach a compromise on the vastly different measures in the waning hours of the congressional session.