RIAs might be winners in election

Democratic gains in Congress bode well for efforts by registered investment advisers to retain SEC oversight of their industry.

In last Tuesday's election, Americans affirmed the status quo in Washington by keeping the Democrats in charge of the Senate and Republicans in control of the House. Within each chamber, the Democrats gained seats: two in the Senate and seven in the House.

Over the past four years, a time when Washington has focused on fiscal reduction, the budget for the Securities and Ex-change Commission has risen to more than $1.3 billion, from $1.1 billion. The trend may continue in the new political landscape.

“Having more Democrats in the Senate and the House, you'd have to handicap as favoring additional SEC appropriations,” said David Tittsworth, executive director of the Investment Adviser Association.

The situation could indirectly influence the legislation that addresses oversight of the financial advice sector.

House Financial Services Committee Chairman Spencer Bachus, R-Ala., introduced a bill this year that would authorize one or more self-regulatory organizations for financial advisers.

He said that it would strengthen investor protection by ensuring more-frequent examinations.

BURDENSOME REGULATION

Investment advisers strongly oppose Mr. Bachus' bill, arguing that it would add a layer of costly regulation that would threaten the viability of small firms.

Instead, they favor an alternative measure written by Rep. Maxine Waters, D-Calif., that would authorize the SEC to charge advisers user fees for exams. But maintaining adviser oversight at the SEC would require that Congress provide the commission with more money or the ability to collect more through fees.

For the moment, both pieces of legislation are stalled and will have to be reintroduced in the 213th Congress when it convenes in January. This fall, Mr. Bachus failed to bring enough Republicans on board to move his measure out of committee.

“It's clear there wasn't a lot of support on Capitol Hill for [Mr. Bachus'] bill before the election,” said Dale Brown, chief executive of the Financial Services Institute Inc., which backs the legislation. “I don't see [the election] results changing that dramatically.”

What could make a big difference, however, is something else going on below the surface of the congressional status quo. There will be a change in leadership on the House Financial Services Committee as Mr. Bachus steps down due to term limits imposed by the House GOP caucus.

On the Democratic side of the panel, Ms. Waters is likely to take over the ranking-member position from Rep. Barney Frank, D-Mass., who is retiring.

The early favorite to lead the committee is Rep. Jeb Hensarling, R-Texas, chairman of the House Republican Conference. He hasn't stated a position on the SRO bill and didn't attend a June hearing about the measure.

“My understanding is he's less enthusiastic [than Mr. Bachus], but it doesn't mean he's opposed,” said David Mendels, director of planning at Creative Financial Concepts LLC. “What we're talking about is a matter of degree.”

Mr. Hensarling's office didn't respond to a request for comment.

The stasis surrounding SRO legislation is just fine with Barbara Kirstein, an investment consultant at LPL Financial LLC.

There are plenty of laws in place already addressing the investment advice business, she said.

“They just need to follow what's on the books,” Ms. Kirstein said. “We don't need more of anything.”

Although it is too early to read the tea leaves on SRO legislation, most observers expect the Labor Department to move quickly on a proposal that would extend the definition of “fiduciary” under federal retirement law for retirement plan advisers.

The rule is required to better protect workers and retirees who must build their own retirement nest eggs through 401(k) plans and individual retirement accounts from conflicted advice, the Labor Department said.

The department withdrew the rule last year amid strong opposition from the financial industry, which said that it would raise costs and increase liability for brokers selling IRAs.

BIPARTISAN OPPOSITION

The status quo on Capitol Hill means that bipartisan opposition to the original Labor fiduciary rule remains in place.

“There's not a groundswell of support for this by either party,” said Bill Lowe, president of Sammons Retirement Solutions Inc. “It has a chance not to be proposed in the short term.”

Broad tax reform presents another challenge for retirement plans. Advocates are bracing for congressional attempts to reduce or eliminate tax deferrals for retirement savings in order to pay for reducing individual rates.

But most lawmakers acknowledge the importance of retirement savings incentives, said Jamie Kalamarides, senior vice president for institutional investment solutions at Prudential Retirement Insurance and Annuity Co.

“I'm confident that retirement tax policy will remain largely the same, with some changes around the edges,” he said.

POWER SHARING

An effort to expand workplace coverage “is the legislative issue that will be coming up in the 213th Congress around retirement,” Mr. Kalamarides said.

Across all issues, continued power sharing on Capitol Hill likely will result in slow, deliberative lawmaking.

“I happen to be a great fan of divided government,” Mr. Mendels said. “It puts some limits on the crazies on both sides.”

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Related Topics: Securities and Exchange Commission