WASHINGTON -- A key House panel, concerned about the alleged bilking of municipalities nationwide by California investment adviser Steven Wymer, got an earful from state and local officials yesterday about the need for better regulation of financial advisers.

Michael Williams, treasurer of Colton, Calif., outlined his grueling efforts in November 1988, when he first took office, to trace city funds that had been invested 10 months earlier through investment adviser Denman & Co.

The firm was headed by Mr. Wymer, who was indicted this winter on criminal fraud charges in connection with the loss of $100 million he invested for 60 municipalities nationwide through Denman and a subsequent firm, Institutional Treasury Management.

Mr. Williams told the House Energy and Commerce Committee's subcommittee on telecommunications and finance that much greater oversight is required for advisory firms that engage in "high-risk" activities for clients, such as advisers that handle discretionary accounts and have custody of client's funds.

A government Finance Officers Association panel is expected to issue guidelines this year on how to deal with investment advisers that will urge municipalities to keep bond proceeds and other extra funds under constant control of a bank custodian.

Members of the House finance panel, chaired by Rep. Edward Markey, D-Mass., have introduced legislation that would require advisers to pay annual fees for the first time. The bill also calls for substantially beefing up the Securities and Exchange Commission's inspection staff for investment advisers.

Rep. Markey said Institute Treasury Management's activities resulted in millions in losses for numerous small towns, counties, and government pension plans in Iowa, California, and Colorado. "Access to money [by financial advisers], the veneer of government approval, and no realistic risk of detection is a truly combustible mixture," he said. "And it was not just the ignorant and unsophisticated that got burned."

Scott Harshbarger, Massachusetts's attorney general, told the panel that when his office gets involved in cases, it is often "at the end of the line, when the damage to victims has already been inflicted and the likelihood of making the victim whole again is greatly diminished."

Mr. Harshbarger urged the subcommittee to mandate that state laws governing financial advisers be no less stringent than the federal legislation. "This would promote a uniform floor of consumer protection all over the country," he said.

The subcommittee is expected to act on the measure in the next few weeks.

In a related move, the National Association of Independent Financial Advisors, whose members do not have to register with the SEC as financial advisers, is surveying its members to determine if they are engaging in activities that could trigger a registration requirement.

The move comes after SEC Commissioner Richard Roberts said he is concerned that some independent advisers are counseling municipalities not only how to put together bond deals, but how to invest idle bond proceeds. He said he became worried after one such adviser recently received a pledge from the SEC staff that the agency would not recommended enforcement action against the firm if it did not register.

"There is a very modest amount of participation in the investment of bond and note proceeds," said J. Chester Johnson, a former president of the independent advisers group. "But where it does exist, it's also against the backdrop of state laws that limit what [funds] can be invested in. We're of the opinion that there is no demonstration of any" need for additional regulation, he said.

Officials in the SEC investment management division have indicated that independents that advise clients about investing bond proceeds may be less likely to win registration exemptions in the future.

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