WASHINGTON -- A key House subcommittee yesterday approved stringent new legislation to increase federal regulation of financial advisers.

The move comes in response to the alleged defrauding of municipalities nationwide by investment adviser Steven Wymer. Mr. Wymer, head of Institutional Treasury Management of Irvine, Calif., was indicted this winter in a Los Angeles federal court on criminal fraud charges in connection with the loss of $100 million he invested for 60 municipalities nationwide.

The House telecommunications and finance subcommittee, chaired by Rep. Edward Markey, D-Mass., approved by the voice vote a bill that would increase the fees advisers pay to register with the Securities and Exchange Commission.

The increase, also included in a bill cleared by the Senate Banking Committee earlier this year, would help the agency finance a boost in staff to examine financial advisers, which the SEC calls inadequate.

But the House bill also includes provisions that go beyond the Senate bill. It would direct the SEC to inspect new advisers the first year they hang out their shingle, require inspections based on a series of "risk" factors, and call for follow-up inspections of troubled firms.

The bill also would require the SEC to survey for unregistered advisers and develop a plan to deal with the problem. This would include a new rule to correct any "pattern of misinterpretation" of how "investment adviser" is defined in current standards.

The bill makes it clear that investment advisers must make a determination that the securities they recommend are suitable for particular investors.

Also under the bill, advisers would be required to provide investors with a brochure describing the adviser's background and whether he or she takes commissions. Advisers would have to have "transaction reports" disclosing commissions or fees and periodic summaries of all charges to a customer.

The bill cleared by the subcommittee dropped two provisions from an earlier draft. One would have required the SEC to issue rules defining who must register as an investment adviser, and another would have made clear that investors can bring private lawsuits against advisers. A subcommittee aide said such a right already exists.

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