Adviser advocates seek tax breaks for advisory fees, business revenue

Schwab, Investment Adviser Association want lawmakers to revisit 2017 law to reinstate tax deduction for investment expenses and to expand pass-through income option to advisers

Jan 9, 2019 @ 5:17 pm

By Mark Schoeff Jr.

Adviser advocates are playing a long game in trying to secure tax changes that would benefit investors and the advisers who serve them.

Charles Schwab & Co. Inc. and the Investment Adviser Association are beginning the new Congress where they left off in the previous one: trying to convince lawmakers to revisit the 2017 tax law to restore deductions for advisory fees and other investment expenses that exceed 2% of adjusted gross income. They also want to expand a provision of the measure providing tax breaks for pass-through income to include financial advisers.

"As you might expect, these will be difficult matters to resolve favorably, but we have to try for the sake of fairness," Jeff Brown, Schwab senior vice president for legislative and regulatory affairs, wrote in an email.

One of the challenges facing the deduction for advisory fees is that it is among many eliminated deductions.

"Reinstating just one of those wouldn't have the desired effect," said Timothy Steffen, director of advance planning at Robert W. Baird & Co. "You need to reinstate all miscellaneous deductions."

Bringing back federal tax breaks for state and local taxes might be easier because this affects both Republican and Democratic districts. Rep. Nita Lowey, D-N.Y., has introduced a bill that would restore the so-called SALT, or state and local tax, deductions. But that bill could pit high-tax states against low-tax states.

Amending the pass-through deduction also would be complicated. Engineers, architects, insurance brokers and mortgage brokers qualify, but stock brokers and investment advisers do not.

"No matter how you draw the line, it's going to be very confusing," Mr. Steffen said. "Cherry-picking preferred professions is going to be tough to do at this point."

To build support for the adviser tax breaks, the IAA is expanding its campaign donations. The group is going beyond targeting lawmakers with oversight of adviser issues and reaching out to the House Ways and Means and Senate Finance committees.

"We are considering making contributions to members of the tax-writing committees as part of our effort to gain reform of the tax code," said Neil Simon, IAA vice president for government relations.

But securing victories will be tough in the new congressional landscape. Democrats, who opposed the 2017 tax overhaul approved by a Republican Congress, have taken over the House. Enough Democrats also remain in the Senate to halt tax legislation that has GOP backing.

The forecast is for tension and gridlock.

"It's far from clear that this Congress will enact any meaningful tax legislation," Mr. Simon said. "We are going to be laying the groundwork for making these changes to the tax code, but it may be a future Congress that gets around to doing it."

That seemed to be the outlook from one prominent lawmaker on Wednesday.

In a media gathering in his Capitol Hill office, Sen. Chuck Grassley, R-Ia., chairman of the Senate Finance Committee, indicated that technical corrections are likely to be the only changes considered to the 2017 tax cuts.


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