Asset managers warn of growing oversight burden

Compliance with new Securities and Exchange Commission (SEC) rules to be brought in next year under the Investment Advisers Act has doubled the cost of oversight at some US asset managers, a survey has found.

The study, by the US CFA Institute and the Investment Adviser Association, found that the cost was highest for medium-sized firms with between $100 million and $1 billion under management.

On average, asset management firms employed one compliance officer in 2004, but this rose to between two and four in 2005. The cost of compliance rose 54% on average, from $144,394 to $221,900, the survey found; respondents expected the cost to rise further in 2006 to an average of $247,776.

Total staff time spent on compliance functions has doubled to between 1000 and 2000 hours a year, the survey said.

At present, only advisers with at least $25 million under management, or who advise a registered investment company, are compelled to register with the SEC. Under an amendment to the law passed in 2004, however, most of them, including many hedge fund managers, will have to register next year.