(Dow Jones) As U.S. lawmakers redraw the map of financial regulation, state securities regulators from Texas to New Jersey are eyeing a plan to examine thousands of additional advisors. The question is if they can afford it. ?

Prompted by the wave of investment fraud exposed during the financial crisis, lawmakers and state securities regulators are pushing to assume oversight of many investment advisors now under the eye of the Securities and Exchange Commission. About 4,000 advisors managing between $25 million and $100 million in assets would shift from federal to state supervision under proposals in Congress, according to the North American Securities Administrators Association, or NASAA, an organization of state regulators. ??

States are better equipped to dig into local matters and can examine advisory firms more frequently than the SEC, says Denise Crawford, NASAA president.

Currently, the SEC says it inspects from 9% to 12% of the 11,000 advisory firms it oversees. ??State regulators are in the process of signing a mutual agreement to cooperate with one another in policing additional advisors if the proposal becomes law.

But the movement is occurring as states are struggling with drops in tax revenue and widening budget gaps. Those shortfalls approach a combined $180 billion for 48 states, according to the Center of Budget and Policy Priorities.

Some $40 billion in federal assistance will help, says Nicholas Johnson, director of the group's State Fiscal Project. He points out that states can still make regulation a priority. ??In California, for example, a fee-based system has insulated securities regulation from the state's $20 billion budget gap.

"The budget shortfalls in our state are legendary at this point but our department's revenue stream is mainly self-funded," says Preston DuFauchard, California's corporations commissioner. ?

California would oversee about another 600 advisers under the plan, according to NASAA. The state is considering new fees to cover the costs of more examinations. A $25 yearly renewal fee could generate up to $7.5 million from advisors, says DuFauchard. Still, right now California can only handle about 300 exams a year, he says. That translates to an average of one exam every ten years for advisors in the state. ?

New Jersey regulators are eager to expand oversight but fear the practical limitations of budget cuts. NASAA anticipates an additional 100 advisors would shift to New Jersey's watch. ?

The state's Bureau of Securities generates income from enforcement penalties and fines, which can vary each year, says bureau chief Marc Minor. It typically conducts exams that arise from complaints, or cause exams, but wants to ramp up routine exams to help keep advisors in line. ?

States that rely on self-funding, such as Colorado and Illinois, say resources aren't an issue but regulators whose budgets depend, entirely or in part, on state appropriations could feel the pinch.

Pennsylvania's estimated $3 billion budget shortfall could affect its securities commission, which is funded through both state revenues and fines it collects. The commission would oversee about 140 more advisers under the plan, according to NASAA. ??

The commission would "love to hire people" but has lost nine positions in recent years, says Lewis Levin, Pennsylvania's director of enforcement, litigation and compliance.

Some states that rely on their legislature for funding aren't overly worried. Ronald Thomas, securities division director of Virginia's State Corporation Commission, doesn't anticipate problems with hiring two additional examiners to police about 120 more advisors.

A spokesman for Texas regulators says they're eligible for an extra $934,000 each year of the state's current two-year budget cycle if the agency's board determines the funds are necessary. ?

In New York, regulators would oversee about 350 additional advisors and say they are still monitoring the situation. Under a New York state law called the Martin Act, the state already has jurisdiction to go after larger firms in the instance of fraud, said a spokesman for New York State Attorney General Andrew Cuomo, whose office regulates investment advisors.

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