SRO fight creates strange bedfellows

Maxine Waters' view on regulation may make her a favorite of advisers right now, but the feeling isn't likely to last

Mar 17, 2013 @ 12:01 am

By Mark Schoeff Jr.

SRO, Maxine Waters
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Waters" ((Photo: Bloomberg News))

It's probably safe to say that veteran congresswoman Maxine Waters has little in common with investment advisers.

While most advisers lean to the right politically, the 74-year-old Ms. Waters has spent 22 years in the House of Representatives championing mostly liberal causes, which has earned her the enmity of conservatives.

The votes cast by the California Democrat, who became ranking member of the House Financial Services Committee this year, produced a score of 83.3 on the liberal side in a ratings system devised by policy magazine National Journal.

But politics sometimes makes for strange bedfellows, and perhaps no relationship is stranger than the one Ms. Waters currently has with advisers.

That's because last year, Ms. Waters introduced legislation — and is set to introduce it again as early as this week — that would, in effect, keep the Securities and Exchange Commission as the primary regulator for registered investment advisers.

Most advisers strongly support keeping the SEC as their regulator, especially given the fact that a competing bill was introduced last year that might have shifted adviser oversight to the Financial Industry Regulatory Authority Inc. Advisers are vehemently opposed to falling under Finra's purview.

Both bills died at the end of last year's congressional session.

Ms. Waters' bill would increase the number of investor examinations the SEC could conduct by giving it the ability to assess user fees for the exams. A 2011 SEC study showed that the agency examines only 8% of advisers, who numbered 12,000 at the time of the study. About 40% have never been examined.


Underfunding is most often cited as the principal reason why so few advisers are examined.

Although she and advisers may diverge on many issues, they agree on SEC oversight.

Blaine Dunn, owner of Dunn Financial Advisors LLC, worked as an aide to three GOP House members early in his career. Although his politics are different from those of Ms. Waters, he said her user fee bill is a good idea.

“On this issue, if we were face to face, I would say, "Maxine, let me put my arm on your shoulder and we'll work together to create a bill that's beneficial to the consumer,'” Mr. Dunn said.

“My impression of Congresswoman Waters is that she's a diligent champion for investors in this case and the middle class generally,” said Jonathan Roberts, senior vice president and chief compliance officer at Klingstein Fields & Co. LLC. “I don't think she's viewing advisers as her constituents but as her partner in [advancing] investor protection.”

In an interview last week, Ms. Waters said while she favors keeping the SEC as the regulator of advisers, the commission's exam record is poor.

“If we have user fees, we can expand that substantially,” she said. “We want to make sure we do everything we can to increase [SEC] funding so they can do their job. I consider [the user fee measure] one of the important and meaningful bills I introduce.”

Supporters of the SRO bill argue that an industry-run organization would augment SEC adviser oversight and increase investor protection at a time when the SEC is unlikely to get the funding it needs from Congress. Investment advisers counter that an SRO would add a costly new layer of regulation and hurt small firms.

They will have a chance again this year to support Ms. Waters' approach.

Ms. Waters is in sync with advisers, said Joel Redmond, a senior financial planner at Key Private Bank NA. He said that in a market in which investors are vulnerable to being ripped off due to conflicted advice, those who are treating their clients well welcome increased scrutiny.

“It vindicates the code of conduct we've always lived by,” Mr. Redmond said. “[Ms. Waters] seems to be thinking along the lines of a lot of other high-level planners.”

Although advisers like her bill, it's their clients whom Ms. Waters has in mind.

“My concern basically is about protection of consumers,” Ms. Waters said. “We need to have [advisers] who know what they're doing, can be trusted [and] can be regulated.”

In her new role on the House Financial Services Committee, Ms. Waters' agenda will extend well beyond adviser issues. Among her priorities are policies related to financial institutions deemed “too big to fail,” money laundering, community banks, federal housing, Fannie Mae and Freddie Mac, and the Consumer Financial Protection Bureau.


In the House, the majority party dominates, thanks to the chamber's rules. For any of Ms. Waters' priorities to be addressed, she'll need the support of some Republicans. She hopes that she and committee Chairman Jeb Hensarling, R-Tex., can keep partisan tensions to a minimum.

“I'm talking with Mr. Hensarling, and so far, we're getting along pretty good,” Ms. Waters said. “I'm always optimistic.”

Regardless of vote outcomes, Ms. Waters, a 22-year veteran of the panel, offers a fresh perspective. As far as she knows, she is the first woman and the first African-American to serve as ranking member, a position she claimed when Rep. Barney Frank, D-Mass., retired.

“I'm hoping to bring a voice and views in a way that weren't presented before,” said Ms. Waters, who was first elected to her Los Angeles-area seat in 1990 and is a past chairwoman of the Congressional Black Caucus.

Like most legislators who rise to leadership positions, Ms. Waters has engaged in partisan combat. She also was cleared last fall by the House Ethics Committee of charges that she allegedly tried to gain favors for a minority-owned bank in which her husband was a shareholder.

Mr. Dunn is willing to give her a fresh start with the user fee bill.

“If she can calm her rhetoric and work with members of the other party, she can do something good for everyone,” he said.


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