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Advocating for Greater Federal and State Securities Regulatory Cooperation and Collaboration

Commissioner Luis A. Aguilar

U.S. Securities and Exchange Commission

NASAA/SEC 19(d) Conference, Washington, D.C.

May 7, 2012

Thank you Jack [Herstein] for that kind introduction and let me also take this moment to thank Jack for his leadership as the current President of NASAA (North American Securities Administrators Association). It is a pleasure to partner with NASAA and I look forward to the work we will engage in going forward.

Before I begin, let me start by issuing the standard disclaimer that the views I express today are my own, and do not necessarily reflect the views of the Securities and Exchange Commission, my fellow Commissioners, or members of the staff.

I am pleased to be here again, at the SEC/NASAA Annual 19(d) Conference. As the SEC liaison to NASAA, I can honestly report that working with you is one of the highlights of my responsibilities. Today, I am among many friends and colleagues with whom I have worked since my initial swearing-in ceremony to be an SEC Commissioner in July 2008. When I look back at what we have faced during this tenure, it is amazing that we are still standing.

Much of your diligence and hard work is unsung and unheralded. The frauds you have prevented and the investors you have protected are triumphs that should be celebrated. There is no truer testament to your hard work. I applaud you.

The difficult work that you do on a daily basis in the face of inadequate resources, ancient technology, and outsized opponents is honorable. Regulator bashing is current sport in DC. While I don’t mind critics who keep the SEC honest and in touch with its mission, I recognize that there are those whose goal is to prevent federal and state regulators from having the tools to be effective and working to protect the public’s interest. I encourage all of us to focus on the honorable work and stave off the distractions and obstructions. I signed on for a second term as an SEC Commissioner so that you and I could continue our work and bring back the focus of the SEC to those who need it the most – and that’s on investors. Without investors – the hard-working men and women who write the checks – there is no capital market and there is no growth in the economy.

My time with you today is limited and I want to keep my remarks focused. I think it is important that regulators come together to combine forces and pursue our common goals. I want to talk to you about a few opportunities I see on the horizon.

Greater Opportunities for SEC/NASAA to Partner

When I first spoke to NASAA in January 2009, I spoke about the importance of a “strong, collaborative relationship between NASAA and the SEC” – and nothing has changed.1 I continue to be interested in exploring more opportunities and avenues for the SEC and NASAA to partner and leverage our collective resources to protect investors. At a time when regulators are under greater constraints than ever, it makes sense for us to come closer together to further our common goals.

Transition of Advisers to the States

I want to start with an example where the SEC and NASAA staffs have already devoted enormous time and resources, and where the effects are obvious. The oversight of investment advisers has always been a partnership between state and federal regulators.2 Congress reinforced this when it enacted Section 410 of the Dodd-Frank Act to expand state authority to include mid-sized investment advisers with $25 million to $100 million in assets.3 The smooth transition related to new registrants and changes in registration thresholds for investment advisers can only be possible because of the tremendous work done, and continuing to take place, of the SEC and NASAA staffs.

As we all know, Dodd-Frank changed registration thresholds in the investment adviser arena in a significant way. Some private fund advisers who had not before been required to register with the SEC – now do.4 With these new registrants, the total number of investment advisers registered with the SEC has increased to 12,623, with total assets under management of $48.8 trillion as of April 4, 2012. This represents a 9% increase in the number of advisers registered with the Commission since July 2011.

To give just a flavor of the effort undertaken here, I know the Commission has received approximately 20,000 Form ADV filings, which were all processed by the IARD. I know the staff has spent extraordinary effort reviewing registration applications, responding to thousands of phone calls and emails, as well as developing and publishing guidance – while prioritizing all the while the March 20 compliance deadline. My thanks to the staff for a job well done.

Of course, there is no rest for the weary. Still ahead is the transition to state registration of a little over approximately 2,100 mid-sized advisers. We anticipate that the total number of investment advisers registered with the Commission will decrease by at least this amount once this transition is complete – and, of course, the responsibility for these mid-sized advisers will shift to the states.

I want to spotlight the SEC and NASAA staff that worked long and hard, and continue to do such good work, to make this process as seamless for registrants as possible. I know that since the enactment of Dodd-Frank, SEC staff and representatives from many state securities regulators have had regular conference calls to discuss the many steps being taken to ensure that this transition is an orderly one. This is the type of work that goes unheralded, but I thank you and wish you luck as this transition is completed by the end of June 2012.


A new opportunity to work together has arisen from the recently passed Jumpstart Our Business Startups (JOBS) Act.5 I am referring to the explicit Congressional mandate that the states be consulted on the crowdfunding provisions that are contained in the bill. Specifically, the statute requires that the Commission consult with the state securities regulators on the rules that are required to implement the crowdfunding provisions of the JOBS Act.6

This is an opportunity for the Commission to engage with the states and set up a process to make sure that the rulemaking benefits from the input of everyone involved. My expectation is that the SEC staff will design a process that incorporates NASAA from the beginning and that the process will produce a truly collaborative product.

It is important that this mandated cooperation and collaboration is not undercut or subsumed by the deadline contained in the statute.7 In connection with all of the statutory mandates of the Dodd-Frank Act, you often hear that more important than the deadlines ... is the need to get it right. That is just as applicable here, if not more so.

Financial Exploitation of the Elderly

I am also interested in partnering with NASAA to develop ways that we can combat the increasing financial exploitation of the elderly. It has been estimated that at least one in five Americans over the age of 65 – that’s 7.3 million seniors – has been victimized by financial fraud.8 It is the responsibility of regulators to represent the vulnerable by writing and enforcing rules that reduce the opportunity for fraud.

Demographically, seniors will soon be the largest percentage of the American population. Experts have been forecasting this for some time, as the baby boomer generation ages and retires. What has not been emphasized, as clearly, is the tremendous generational inequality of wealth between some seniors and everyone else. The good news is that in the aggregate, today’s senior population has been successful in accumulating assets. As noted by Andrew Roth, the Director of Fraud Education and Outreach for the California Department of Corporations, aging baby boomers have accumulated substantial assets, either through inheritance, home equity, or a lifetime of saving for retirement.9 The bad news is that these aging baby boomers are ripe for abuse. This disparity between seniors and everyone else, including their own children, exponentially increases the vulnerability of seniors to being exploited.

Unfortunately, at a time when vulnerabilities are being exacerbated, the law enforcement and government framework to handle elderly exploitation has been severely cut back. Thus, at a time when the need grows greater, there are far fewer resources devoted to the problem. As the General Accounting Office has explained, “[s]tates are primarily responsible for protecting older adults from abuse, neglect and exploitation.”10 Sadly, state resources have been decimated. In 2011, as the economic downturn continued to wreak havoc on government budgets, 181,000 local workers and 63,000 of their state peers were let go.11 In the aggregate, state and local workers have seen their numbers dwindle throughout the Great Recession. Some 656,000 employees have been laid off since mid-2008.12

Given this landscape of a vulnerable population growing larger and more susceptible to exploitation, and the fewer resources devoted to enforcing the law and punishing those who commit fraud – one can see the serious opportunity for financial exploitation of older Americans. We know there will be no shortage of those who will seek to do exactly that. It is almost as if our seniors are wearing targets on their backs.

There will always be those who want to prey on the vulnerable and seek to exploit them. That is why we must have a strong securities law framework in place that limits the opportunities for fraud and deception, and a well-funded enforcement arm to enforce the law against those who attempt to break it.

Unfortunately, we are now facing a world where the elderly are growing more vulnerable, and their protectors find themselves undercut and underfunded. As result, there needs to be a different public dialogue than the one that is now occurring. Currently, there is an acknowledgement that there is a retirement crisis on the horizon; but the vulnerabilities and harm to the elderly investor, and the lack of a clear safety net, have not been acknowledged enough. It is time to take action to cope with this problem. My chief of staff, Smeeta Ramarathnam, and I have already met with the leadership of NASAA, including Jack Herstein and Russ Iuculano, to discuss this topic. I look forward to partnering with NASAA to think through ways we can work collaboratively on this pressing and urgent issue.

Investor Advisory Committee

All of the topics I have discussed today are important initiatives where the public will be better served by greater collaboration and cooperation between federal and state regulators.

The last topic is one that is near and dear to my heart – and that is the Investor Advisory Committee. In 2009, the SEC established its first ever Investor Advisory Committee to amplify investor voices and create a body that was designed to provide advice to ensure that SEC regulatory actions serve the best interests of the public.13 As the sponsor of this committee, I said at its inception, “As Congress and the Commission look toward regulatory restructuring and reinvigorating the Commission with new authority and enhanced resources to fulfill its mission as the country's capital markets regulator, it is imperative that we listen to the voices of investors.”14

Just as this committee was beginning to do real work, it was wound down in anticipation of the imminent establishment of a new Investor Advisory Committee mandated by the Dodd-Frank Act. Unfortunately, the new committee stayed in limbo. It is now almost two years after the Dodd-Frank Act became law, and I am convinced that investors need to be listened to more than ever. Investors’ voices and concerns have to be priorities in the current regulatory landscape, and investors have to be part of the debate. This has not been the case – and this has to change.

I am happy to report that, on April 9, 2012, the Commission announced a new Investor Advisory Committee.15 This 21-member committee has a broad mandate. It is charged with advising the Commission on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and on initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace.

The Dodd-Frank Act was quite specific that there must be at least one representative of state securities commissions on the IAC.16 I am thrilled that Craig Goettsch, Director of Investor Education and Consumer Outreach of the Iowa Insurance Division, will be a valued member of this team. The Dodd Frank Act also specified that the committee have individuals who represent the interests of senior citizens and of individual equity and debt investors. 17 I have been asked several times why there are not more representatives of individual investors on this committee and I think this is a critical question with no satisfactory answer. I particularly think it is very important that this committee take on and represent the issues important to retail investors. These are the voices that are heard the least at the Commission and yet, even after the financial crisis drove many retail investors out of the market, more than half of all American households are invested in stocks and stock mutual funds, either directly or through IRA or 401(k) accounts.18

The Investor Advisory Committee provides regulators the opportunity to amplify investor voices and investor concerns that are drowned out in the normal course of DC daily life. Now that this new committee has just been formed, with its first meeting in June, I would like your thoughts on how we can best move forward to make sure that the interests of retail investors are well-represented and heard.


These are challenging times where investor protection feels like an uphill battle. In order to win the war, federal and state regulators must work together to pool resources and ideas to serve the public to our fullest ability. Now, more than ever, the American public needs its regulators to be vigilant and pro-active.

I have highlighted a few issues where I see federal and state regulatory cooperation and collaboration as critical to the success of the underlying policy. It behooves us to seize these opportunities and I look forward to working with you to do just that.

I have to conclude where I began. I have to thank you for the work you do in the public interest every day. It is this work that inspires me and it is this work that I wish to support.

Thank you for having me here and have a wonderful conference.

1 Luis A. Aguilar, Comm’r, U.S. Securities and Exchange Commission, Speech: “Empowering the Markets Watchdog to Effect Real Results” (January 10, 2009),

2 See National Securities Markets Improvement Act of 1996, Pub. L. No. 104-290, 110 Stat. 3416, § 303 (1996) (allocating to states certain responsibility for small investment advisers with less than $25 million in assets under management).

3 Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010) (the “Dodd-Frank Act”).

4 See section 403 of the Dodd-Frank Act (eliminating the old private adviser exemption from section 203(b)(3) of the Investment Advisers Act of 1940 (the “Advisers Act”)).

5 Jumpstart Our Business Startups Act, Pub. L. No. 112-106 (2012) (the “Jumpstart Act”).

6 See section 302(c) of the Jumpstart Act.

7 Section 302(c) of the Jumpstart Act provides for the SEC to issue “such rules as the Commission determines may be necessary or appropriate for the protection of investors to carry out” the crowdfunding provisions, within 270 days after the date of enactment. President Obama signed the Jumpstart Act into law on April 5, 2012.

8 Investor Protection Trust, “Survey: Elder Investment Fraud and Financial Exploitation” (June 15, 2010),

9 Kimberly Blanton, “The Rise of Financial Fraud: Scams Never Change but Disguises Do,” Center for Retirement Research at Boston College (February 2012), page 3,

10 Testimony before the U.S. Senate Special Committee on Aging, by Kay Brown, Director of Education, Workforce and Income Security, General Accounting Office (March 2, 2011), p. 1,

11 Tami Luhby, Brutal losses in state and local jobs, CNNMoney, January 6, 2012,

12 Id., citing Greg Daco, IHS Global Insight.

13 Securities and Exchange Commission Release No. 33-9037, File 265-25 (June 3, 2009).

14 Luis A. Aguilar, Comm’r, U.S. Securities and Exchange Commission, Speech: Restoring Investors' Voices — The Launch of the Investor Advisory Committee (July 27, 2009),

15 SEC Announces Members of New Investor Advisory Committee,

16 See section 39(b)(1)(B) of the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), which was added by section 911 of the Dodd-Frank Act.

17 Securities Exchange Act of 1934, sections 39(b)(1)(C) and 39(b)(1)(D)(i).

18 Dennis Jacobe, Chief Economist, Gallup, Inc., “In U.S., 54% Have Stock Market Investments, Lowest Since 1999” (April 20, 2011),

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