Obama win means uncertainty the only certainty, advisers say

Status quo election offers slim chance for compromise on fiscal cliff, tax cuts and fiduciary standard

Nov 7, 2012 @ 7:35 am

By Mark Schoeff Jr.

The status quo that voters endorsed in Tuesday's elections is likely to maintain the political tension in Washington. Investment advisers are hopeful — but not optimistic — that lawmakers will find a way to work together to resolve important tax, spending and regulatory issues.

Late Tuesday night, President Barack Obama secured a decisive victory in the Electoral College and a slim margin in the popular vote over Republican presidential nominee Mitt Romney. Voters also kept Republicans in control of the House and Democrats in charge of the Senate.

“You're going to see the same type of divisiveness we've seen for the last couple years,” said Neal Solomon, managing director of WealthPro LLC. “The Democrats will have a strong upper hand, but Republicans are not going to go away.”

The Financial Services Institute warned Mr. Obama not to misinterpret his win as a mandate for additional oversight of the financial sector.

“We urge the president to carefully consider the closeness of the election results as he evaluates his regulatory policy priorities for a second term,” FSI chief executive Dale Brown said in a statement. “Clients and their independent financial advisors and financial services firms need a healthier, more business friendly regulatory environment.”

Register for today's webcast on what the Obama victory means for advisers and clients.

The fact that neither party can ride into the capital on a wave of popular support means that legislators may cooperate, said John Blamphin, chief operating officer at Retirement Management Systems Inc.

That increases the chances of congressional action to prevent the $600 billion of tax increases and spending reductions slated to go into effect at the end of the year.

“The status quo election is probably good for [the fiscal cliff],” Mr. Blamphin said. “Elected officials have an opportunity to work better together early after an election cycle.”

Fresh off his win, Mr. Obama will push to let the Bush administration tax cuts expire for high earners while ensconced House Republicans will seek to extend them for all income levels.

Pragmatism is likely to prevail as Congress tries to avoid the fiscal cliff, according to Mr. Solomon.

“I think there will be a compromise at some point,” Mr. Solomon said. “There's no other choice. Neither party wants to be blamed for being the holdout when that damage occurs.”

Most investment advisers agree that the majority of practitioners in the field favored Mr. Romney. One who voted for him, however, said the return of Mr. Obama to the White House could boost the financial markets.

Brian Lockhart, chief investment officer of Peak Capital Management LLC, said that Mr. Obama's re-election will mean a continuation of monetary easing and low interest rates.

“The majority of excess liquidity will find its way into the equity markets,” Mr. Lockhart said. “A second Obama administration is good for people in the investment advice sector who are looking to maximize earnings over the next three to four years.”

It was a back-handed compliment. Mr. Lockhart said that he supported Mr. Romney because the former Massachusetts governor was more likely to tackle tough long-term problems such as reducing the burgeoning national debt.

“We are at a time when we need another Paul Volcker,” said Mr. Lockhart, referring the former Federal Reserve chairman who brought down high interest rates through steps that were painful to the economy in the short term.

Mr. Obama may not tackle the deficit the way that advisers would prefer. The Democratic administration is likely to advance other issues that will impact advisers, however. Those includie a Securities and Exchange Commission regulation imposing a uniform fiduciary standard for retail investment advice and a Department of Labor regulation that would broaden the definition of “fiduciary” for advisers to retirement plans.

“You're likely to see the fiduciary rule go through at the SEC and the DOL,” Mr. Blamphin said.

On broader issues, however, there is plenty of doubt about what the renewal of the Obama administration and the congressional majorities will accomplish.

“The president and Congress have made almost no progress in putting out national financial house in order or in creating a predictable and rational framework for our private sector to flourish,” wrote Leighton Roper Jr., owner of Net Worth Advisory Services, in an email. “The bottom line of the election results is that there will remain a tremendous number of problems to be engaged — all of which will have very difficult and unpredictable implications for the long term.”

(Join InvestmentNews Washington reporter Mark Schoeff Jr., senior columnist Jeff Benjamin and a panel of industry experts on a live webcast on Wednesday assessing the impact of the election on financial advisers and their clients. The webcast will take place from 4 -5 p.m. ET. To register, go to InvestmentNews.com/postelection)


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