Advocates to advisers: Charge Capitol Hill

Investment advisers stopped legislation last year that would establish a self-regulatory organization to oversee them by making their presence felt on Capitol Hill. They're keeping it up this year.

Even though members of Congress are routinely excoriated for being out of touch with the rest of the country, nothing means more on Capitol Hill than input from constituents.

Investment advisers experienced this first-hand last year. The collective efforts of investment adviser advocacy organizations was the key to stopping legislation that would have authorized an industry-run regulator to replace the Securities and Exchange Commission in directly overseeing advisers.

It’s an idea that advisers hate. They say a self-regulatory organization would add a costly additional layer of regulation and burden small advisers with higher costs. They got that message across last year by sending emails and letters to federal lawmakers and conducting dozens of meetings with them and their staffs, according to David Tittsworth, executive director of the Investment Adviser Association.

“The story of the last year was the involvement of the investment adviser community on Capitol Hill in a way that I haven’t seen in the last 16 years,” Mr. Tittsworth said at the IAA compliance conference on Friday.

Advisers were able to overcome a strong lobbying push by the Financial Industry Regulatory Authority Inc., which wants to oversee advisers. Finra and other SRO backers argue that the SEC lacks the resources to examine more than about 8% of registered advisers annually. An SRO would substantially increase adviser examinations and strengthen investor protection.

The SRO proponents had a huge ally in their corner last year – then-chairman of the House Financial Services Committee Spencer Bachus, R-Ala. But Mr. Bachus was not able to bring the bill to a vote in his own committee because of resistance from fellow Republicans, not to mention Democrats.

Advisers overcame the lobbying muscle of Finra by visiting lawmakers and making other contacts, according to Mr. Tittsworth.

“We really prevented this bill,” Mr. Tittsworth said. “The collective effort of the adviser community made a difference.”

For now, the SRO issue is quiet. Earlier this year, Finra chief executive Rick Ketchum said that the agency is backing off of its lobbying effort due to lack of support on Capitol Hill.

But the issue could flare again, if there’s another major investor ripoff along the lines of the $65-billion Ponzi scheme perpetrated by Bernard Madoff. It also could spring back to life if the likely new SEC Chairman Mary Jo White embraces the SRO idea or if a new lawmaker emerges to champion a bill.

In the meantime, advisers won’t drop their guard. They agree that they should be subjected to more exams. But they back a bill introduced last year by Rep. Maxine Waters, D-Calif., that would allow the SEC to assess user fees on advisers to fund exams.

Even though neither an SRO or user-fee bill has been re-introduced in the new Congress, advisers are continuing to trek to Capitol Hill to explain their business to lawmakers and outline their policy concerns. The IAA is sponsoring its sixth annual Capitol Hill Day on June 4.

“It’s easier to educate members of Congress and make friends when there’s no clear ask,” said Neil Simon, IAA vice president for government relations.

The IAA also sponsored about 45 adviser visits to the home office of their member of Congress over the Presidents’ Day congressional recess.

“We’re focusing on improving our grass roots advocacy,” Mr. Simon said.

That’s a good idea. The way to a lawmaker’s heart is through voters.