Biden financial transition team cheers investor advocates

But how a Democratic-led SEC interprets and enforces Reg BI depends on its chair

The roster of President-elect Joe Biden’s transition team for financial regulation has investor advocates hopeful that a Biden administration Securities and Exchange Commission will revisit the new broker investment advice standard.

The group that is reviewing the policy and operations of the SEC and banking regulators includes several figures who have been at the forefront of financial reform in Democratic administrations or while working for Democratic lawmakers and regulators.

The team is headed by former Commodity Futures Trading Commission chair Gary Gensler, who garnered a reputation for being tough on Wall Street following the financial crisis.

Members include strong supporters of a fiduciary standard for investment advice, such as Dennis Kelleher, chief executive of Better Markets.

Other participants worked for lawmakers and regulators who fought for a fiduciary standard. For instance, Amanda Fischer is a former aide to Rep. Katie Porter, D-Calif., and House Financial Services Chairwoman Maxine Waters, D-Calif. Satyam Khanna was a counsel to former SEC Democratic member Robert Jackson Jr.

The Democratic Party platform included a plank that promised reform of Trump administration investment advice rules, presumably referring to Regulation Best Interest, which now governs brokers, and the Department of Labor’s revised fiduciary rule, which could be finalized soon.

Investor advocates criticize Reg BI and the DOL proposal as being too weak to curb broker conflicts of interest. They say the transition points to a Biden administration following through on taking another look at advice reform.

“The choice of a review team with so many strong, progressive voices on it reaffirms my confidence,” said Barbara Roper, director of investor protection at the Consumer Federation of America.

Knut Rostad, president of the Institute for the Fiduciary Standard, is enthusiastic not only about Gensler but also about the appointment of former Sen. Ted Kaufman, D-Del., as overall head of the transition.

Kaufman, who was an aide to Biden when Biden was a senator and then replaced him on an interim basis when Biden became vice president in 2009, championed banking reforms on Capitol Hill.

Rostad foresees a new approach to financial regulation.

“There’s good reason to be optimistic,” he said. “History repeats. Think Roosevelt in 1933 and Biden in 2020. With Kaufman and Gensler, the blueprint is clear.”

But Jaret Seiberg, managing director at Cowen Group, cautioned against reading too much into the transition team roster.

“There is not going to be a radical shift in policy just because there is someone who advocated radical policy developments on the transition team or within the broader Biden administration,” Seiberg wrote in a recent analysis. “What matters most are those who are put in charge of the departments and agencies as well as those who have power within the White House.”

The SEC will have a 3-2 Democratic majority during the Biden administration. Whoever is chosen as chair will dictate the agenda, select division heads and have the most influence on the agency’s regulatory philosophy — including how it interprets and enforces Reg BI.

Wall Street leaders have already indicated uneasiness about the prospect of Gensler taking over the SEC, according to a Bloomberg News story.

Biden probably won’t get around to selecting an SEC chairman for a while. Gensler may not be tapped for that role, but he offers a template for whomever is chosen, Roper said. He is a former Goldman Sachs executive who has earned the trust of investor advocates.

“Gary is the exception that proves the rule on industry background,” Roper said. “He puts that detailed knowledge of the industry to work for investors” rather than to advance Wall Street priorities.

Rostad also holds up Gensler as a role model.

“He’s demonstrated that he thinks and acts independently of what his former employer, Goldman Sachs, might prefer,” Rostad said.