GOP takeover of Senate could make fate of investment adviser issues unclear

A Republican majority would likely boost the passage of GOP-favored bills, but not the consideration of industry concerns

Oct 13, 2014 @ 12:25 pm

By Mark Schoeff Jr.

A Republican takeover of the Senate following next month's mid-term elections could increase the number of committee hearings and enable the passage of GOP-favored bills but won't necessarily produce many new laws or add momentum to investment-adviser issues.

Republicans are predicted to capture a majority in the Senate, where they currently trail Democrats, 55-45, when independents who caucus with the Democrats are included.

Some of the most vulnerable Senate Democrats face voters in states that supported GOP presidential candidate Mitt Romney — Montana, West Virginia, South Dakota, Louisiana, Arkansas and Alaska. Republican Senate candidates also are running strong in Colorado and Iowa.

Democrats could turn things around in the next couple of weeks in Senate races, but the GOP is nearly certain to maintain, and perhaps add to, its House majority.

With control of both chambers, Republicans will have an easier path to passing bills. But President Barack Obama will be in the White House ready to veto many of them.

“You'll see more activity,” said Marc Gerson, a partner at Miller & Chevalier and a former GOP aide on the House Ways and Means Committee. “The question is: Is the activity for political purposes and messaging or is it legitimate legislative activity that leads to enacted law?”

Sen. Richard Shelby, R-Ala., is likely to become the new chairman of the Senate Banking Committee. When he takes the gavel, he'll have two years to serve as chairman, under Senate GOP rules for committee leadership, because he previously served as panel chairman for four years.

He'll want to pack a lot into his agenda, according to a former aide, and adviser issues, such as fiduciary-duty for retail investment advice and SEC oversight of advisers, may not make the cut.

“This is his final two years to really put his mark on the banking committee,” said Mark Calabria, director of financial regulation studies at the Cato Institute and a former aide to Mr. Shelby. “I don't see him trying to tackle fiduciary-duty for investment advisers.”

Another former aide to Mr. Shelby, Kathleen Casey, was one of the Securities and Exchange Commission members who dissented to a SEC staff report in 2011 calling for the agency to propose a fiduciary-duty rule.

Mr. Shelby might be more open to allowing the SEC to charge user fees to advisers to fund an increase in exams.

“He would prefer a user-fee over money that comes from taxpayers but I don't see him spending committee resources in the next Congress on this topic,” Mr. Calabria said.

The current banking committee chairman, Sen. Tim Johnson, D-S.D., has been focused on protecting the Dodd-Frank financial reform law from attempts to re-open the measure. A panel run by Mr. Shelby would go on offense against Dodd Frank.

“Shelby's a very bright guy and very able legislator,” said Neil Simon, vice president for government relations at the Investment Adviser Association. “He likely would be more active than Johnson has been.”

Under Mr. Shelby, the committee is likely to hold more hearings that put pressure on financial regulators.

“With the Republican chairman, it's going to be 'Why are you doing this? Why are you doing that?' It's not going to be a polite update,” said Duane Thompson, senior policy adviser for Fi360, a fiduciary-duty training company.

Even if the Democrats hold the Senate, there will be a banking committee leadership change because Mr. Johnson is retiring in January.

Many experts anticipate that the next Democratic leader of the panel will be Sen. Sherrod Brown, D-Ohio. Mr. Brown has been a consistent critic of big Wall Street banks. His more populist tone might bode well for fiduciary duty.

“He would be open and sympathetic to our concerns,” Mr. Simon said. “He is investor-protection oriented.”

Aides to Mr. Shelby and Mr. Brown were not immediately available for comment.


The prospects for an overhaul of the tax code are dim, according to experts, because of the tension between a GOP Congress and the White House.

“The bottom line is a Republican Congress is going to do whatever they have to do to pass a tax-reform package, but the president has a veto pen and doesn't have to run for re-election,” said Palmer Schoening, executive director of the Family Business Coalition. “He got a tax increase in the fiscal-cliff bill, and he's unwilling to re-open the book on that.”

For tax reform to take off, Mr. Obama will have to weigh in more forcefully than he has in the past, Mr. Gerson said.

“The administration hasn't really made it a priority,” Mr. Gerson said. “Should Congress spend resources on tax reform over the next two years, if the administration doesn't engage?”

Broad tax reform is can cause disruption within parties as well as across the aisle. But a Republican Congress is less likely to curb retirement-savings tax incentives to finance the lowering of tax rates.

“A Republican Congress is friendlier on that particular issue and more willing to listen to folks who don't want that to be a pay-for,” Mr. Schoening said.

Following November's vote, there will be reconciliation by both parties — for a while.

“After an election, you'll have a willingness of both parties to work together, but that ends quickly, especially with a presidential election on the horizon in 2016,” Mr. Schoening said.


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