Opponents of the Securities and Exchange Commission's recently approved investment advice reform — including the SEC member who voted against it — suggest the regulations will be revisited and changed by a new SEC in a Democratic administration.
If one of the two dozen or so Democrats in the hunt for the White House topples President Donald J. Trump next year, he or she will have the opportunity to appoint a new SEC chairman and give the panel a Democratic majority.
In recent years, a change in political tide has brought with it a reversal in the course of investment advice regulation.
The Obama administration championed the Labor Department's fiduciary rule, which was supported by many investor advocates and investment advisers but strongly opposed by Republican lawmakers and most of the financial industry. It died in court when the Trump administration stopped defending the measure.
The SEC's advice package — the centerpiece of which is Regulation Best Interest designed to raise the broker advice standard — was approved by the agency on a 3-1 vote, with Democratic member Robert Jackson Jr. dissenting and most of the financial industry as well as the GOP cheering it on.
Earlier this week, the House approved an amendment to a spending bill written by Financial Services Committee chairwoman Maxine Waters, D-Calif., that would effectively kill the SEC advice regulations.
"We're in an era where the regulation of the securities markets in general has become more political, and the regulation of brokers and advisers has become one instantiation of that," said Arthur Laby, professor of law at Rutgers University. "To the extent they have to worry about how the political winds are blowing, it makes it harder for anybody in business to plan for the future."
Investor advocates criticize the new SEC rules as being too weak to curb broker-dealer practices that lead to conflicted advice. They want a do-over from a new SEC.
"We're in a situation where it could be the third time's the charm," said Barbara Roper, director of investor protection at the Consumer Federation of America. "I don't think this will go back-and-forth forever."
SEC chairman Jay Clayton missed an opportunity to reach a compromise on advice regulations that would have achieved a unanimous, bipartisan vote, according to Ms. Roper.
"He could have occupied the middle ground, and he chose not to do that," she said. "A new SEC has an opportunity to come back and find that middle ground and finally end the debate."
A former Republican SEC member, however, said Reg BI should stay in place; changing direction based on politics is the wrong approach.
"To go down that road, that's not good for the markets, it's not good for investors," said Paul Atkins, chief executive of Potomak Global Partners.
The fault line on advice regulation is not politics but rather investment advisers versus brokers, according to Duane Thompson, senior policy analyst at Fi360, a fiduciary education, training and technology firm.
"There's a breakdown not so much on party lines but on what their business model is," Mr. Thompson said.
One fiduciary advocate said investment advisers, who will continue to adhere to a fiduciary duty under the SEC's new rules, must leave politics aside and distinguish themselves in the marketplace.
"Washington is so politicized that waiting for a new administration is not a plan," said Knut Rostad, president of the Institute for the Fiduciary Standard. "RIAs need to speak out vigorously to differentiate themselves, and states need to fill the void, as some are doing now."
State activity also has a partisan edge. Those states that are proceeding with their own fiduciary regulations — Nevada, New Jersey and Massachusetts — have Democratic leaders in key positions advancing the charge.
It may be that change is only likely to come at the state level. A new SEC will have a tough time striking Reg BI and starting over due to rulemaking requirements under the Administrative Procedure Act.
"That process acts as an appropriate limiting principle on whether and when rules can change just because the political composition of the commission has changed," Mr. Laby said.
Of course, the battle could move to the courts, as it did with the DOL fiduciary rule.
But there is a way to rise above politics when it comes to investment advice, Mr. Thompson said.
"If you have a fiduciary culture in your firm, it's not going to matter if Republicans or Democrats are in control," he said.