Congress continues to struggle with the issue of proper oversight for investment advisors. Despite catastrophes like the Bernie Madoff scheme, SEC budget constrictions have resulted in only a handful of investment advisors being reviewed by the Commission each year (as compared to over half of all broker-dealers). Various bills have been floated to remedy the situation.

In April, the Investment Adviser Oversight Act of 2012 was introduced in the House. Proposed as an amendment to the 1940 Investment Adviser Oversight Act, the new act seeks to regulate investment advisors by requiring them to join a new self-regulatory organization (SRO) that would be funded by their membership fees. Though not explicitly set forth by the Act, the Financial Industry Regulatory Authority (FINRA) was expected to create and oversee the new governing SRO.

In June, however, the Government Accountability Office (GAO) issued a report critical of the SEC’s oversight of FINRA. Mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the GAO’s report concluded that due to limited resources, the SEC was not performing any “retrospective review” of FINRA rules to determine whether they were actually effective. The GAO further concluded the SEC did not even have a process for conducting a look-back review of FINRA’s effectiveness.

After that damning report, on Wednesday of last week a competing investment advisor oversight bill was introduced in the House. The Investment Advisor Examination Improvement Act of 2012 gives oversight of investment advisors to the SEC, and pays for the SEC’s review with user fees charged to advisors. The user fee model is patterned after the Investment Adviser Association (IAA) and the North American Securities Administrators Association (NASAA), which have both succeeded through participant funding.

Industry groups have applauded the new bill, arguing that not only is it cheaper to fund SEC oversight (rather than create a new SRO), but that SEC oversight offers more effective protection to investment advisors than FINRA. Critics argue that, despite its best intentions, the new bill would basically maintain the status quo, leaving oversight to the perpetually strapped SEC and allowing investor advisors to continue operating with little review.