States are bracing for the added cost and workload of regulating investment advisers due to a provision of the Dodd-Frank financial reform law that shifts responsibility away from the Securities and Exchange Commission.
Under the new law, the regulation of mid-sized financial advisers who manage $25 million to $100 million in assets will shift to states this summer.
The rationale for the move is that the SEC's workload is so high that it only manages to oversee a small fraction of those advisers, according to a story in the Wall Street Journal.
State regulation, at least in theory, means those advisers will get more scrutiny.
The new responsibilities will affect California, Florida, New York and Texas the most, due to the high proportion of financial advisers in those states, according to the Journal.
In Texas, for example, the number of financial advisers overseen by the state is expected to double to 2,400, according to the Journal. In Florida, the number of advisers overseen will increase by more than 60 percent to about 1,800.
Now, states will have to find the resources to handle the extra regulatory burden at a time when they're already struggling with deficits.
Given that struggle, some industry groups are calling for the SEC to instead allow an industry-funded regulator to oversee investment advisers. But that move had come under some scrutiny due to transparency concerns.
It's difficult to estimate how much the switch will cost states, since they are all handling it differently, says Bob Webster, a spokesman for the North American Securities Administrators Association, which represents state securities administrators. But many will, indeed, seek to increase staffing and resources as a result of their new responsibilities, Webster told Governing.
Webster added that all 50 states have entered a memorandum of understanding to work together and share resources as their regulation of investment advisers increases.