My Warm Fuzzies Have Gone Cold

I did some reading on my boat this weekend. I’m not a big fisherman, I like to just cruise to a nice spot, drop anchor and relax.    Well, after reading I may pull my investments and put the money under my mattress.

Last week’s blog discussed the issue of who should perform examinations of registered investment advisers (RIAs).   The consensus was to have the SEC (Security and Exchange Commission) perform the examination, rather than an SRO.  Today, I read in InvestmentNews that the House Appropriations Committee (House) approved a bill to provide only a FRACTION of the funding the SEC requested.  House approved a $50 million increase to the SEC, even though it had asked for $245 million. The SEC believes those funds were needed to hire the staff it needs to fulfill its obligations under the Dodd-Frank Wall Street Reform Act. 

I guess that means the SEC will no longer be an option for RIAs.   Now, I am more concerned about the entire financial industry; I had always thought the SEC was the watchdog for the general public, making sure that companies followed the securities laws.   It was a well-oiled machine watching out for me.  Well, when I read further in that InvestmentNews article I discovered why the SEC didn’t receive all the funding it wanted.

The article went on to quote Rep. Jo Ann Emerson, R-MO, chairwoman of the financial services subcommittee, and on why the SEC doesn’t deserve a bigger increase.  She stated, “The SEC’s problems are not due to lack of funding, they are due to poor implementation of information technology, poor economic analysis, a burdensome organizational structure and a history of not holding their employees accountable.”

So much for my sense of comfort that the SEC had my back.

This wasn’t a good weekend for me and my warm fuzzy feelings about the financial industry.  I also read the Wall Street Journal article titled “SEC Builds Money Fund Case.”  What I had thought was a given – that money market mutual funds always traded at $1 per share – might not be true anymore.

As everyone knows, in 2008 the Reserve Primary “broke the buck” falling below $1 per share, and the US Treasury Department and Federal Reserve intervened to backstop the industry.  This article reveals that the SEC performed a study, which was never released to the public, stating since 1970 there have been approximately 300 occurrences where the parent company had to bailout its money market mutual fund in order to keep it from falling below the $1 value.   It goes on to explain that SEC chairwoman Mary Schapiro believes that stronger regulation is required in the money market industry.

Is anyone else really concerned that the SEC is doing studies but not releasing the results to the public?  I know I am. Maybe if the House knew what the SEC was up to, it could properly fund the SEC and restore my warm fuzzies.

Click HERE for the InvestmentNews Article

SEC Gets Low-Balled by Appropriations Committee

Click HERE for the WSJ Article

SEC Builds Money Fund Case


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