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Savings propel regulators' merger

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Officials give just one reason for folding the Pennsylvania Securities Commission into the state Department of Banking: to save money.

The move will save $1 million initially and more down the line, banking department spokesman Ed Novak said.

"We're expecting larger cost savings in the long term," he said.

Announced earlier this month, the merger will take effect Oct. 1. The combined entity will be renamed the Department of Banking and Securities.

Mandating the unification is Act 86, passed unanimously by the state Legislature and signed July 2 by Gov. Tom Corbett.

It originated in a recommendation from the state Office of the Budget, which saw "a chance to do some streamlining," Novak said.

From an enforcement standpoint, it will be crucial for the department to maintain the same presence of auditors in the field as it has now, said Jeffrey Roof, president of Harrisburg-based fee-only investment firm Roof Advisory Group Inc.

"I think that's the key factor," he said.

Donald Healey, president of Wormleysburg financial planning firm The Healey Group, seconded Roof's concerns about auditing. He also wondered if administrative cuts might compromise the commission's responsiveness and quality of service.

"If there are fewer resources, is that going to be detrimental to us?" he asked.

Roof Advisory Group was licensed through the Securities Commission early on. It has since grown large enough to be licensed through the U.S. Securities and Exchange Commission.

The SEC regulates firms managing more than $100 million in assets; Roof Advisory Group's portfolio exceeds $250 million.

Several studies on staffing are under way, banking department spokesman Ed Novak said. Though it is premature to make definitive statements about staffing levels, he said, "We are committed to making sure that the work of the commission remains … at its current strength."

As for Healey's concerns, the goal is to make the merger so smooth that people don't notice the change, Novak said.

As part of the merger, the three-member Securities Commission will expand to five with the addition of the Secretary of Banking and a representative of the governor. The commission will have final say on hearings instigated by the department, Corbett's office said in a statement.

The banking department and the commission each have its own staff, budgeting system, computer network and so on, Novak said. As much as possible, dual systems will be replaced with a single unified system, he said.

Most savings will come from personnel reductions, he said. The Department of Banking has about 175 employees; the Securities Commission has about 75.

"I don't know what the combined figure is going to be," he said.

In addition, the Department of Banking is negotiating a lease for office space for the commission and expects some savings from that, Novak said.

The merger notwithstanding, a separate budget will be maintained for the Securities Commission function, Novak said. That means in many cases officials will have to pro-rate employees' hours and departmental resources, deciding how much is allocated to securities-side work and how much to the banking side.

"They have a tremendous amount of work to try and sort all this stuff out," Novak said.

Both agencies are self-funded, garnering their operational budgets from fees and assessments on the industries they regulate. However, the Securities Commission's budget is considered part of the state's general fund, while the Department of Banking's budget is not, Novak said.

"I think we'll have a good idea fairly soon about the ratios of who gets charged for what," he said.

Each year, the Securities Commission collects $20 million to $30 million more than it needs to meet expenses, money it returns to the general fund, he said. The Department of Banking generates occasional surpluses, which go into a separate reserve fund.

The Securities Commission began as an arm of the Department of Banking, and was not made independent until the Pennsylvania Securities Act of 1972, said Mike Byrne, the commission's chief counsel. The October merger thus brings the commission full circle.

The commission licenses brokers and investment advisers, enforces state securities laws and educates the public about investment fraud. Nearly 200,000 individuals and businesses operate under licenses issued by the commission, according to its website.

The Department of Banking wants to make sure no one is caught unawares by the merger, Novak said. On Oct. 1, it should be "business as usual," he said.

"We don't want this change to take place in a vacuum," he said.


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