Advisors give here-we-go-again shrug to potential government shutdown

Investment advisors are shrugging off a potential government shutdown this weekend.

“We’ve been through this song and dance before,” said Noah Damsky, co-founder of Marina Wealth Advisors. “It feels like déjà vu. This is what they do every time.”

Lawmakers in Washington are once again at loggerheads over the federal budget. If a funding agreement — or a stopgap solution — can’t be reached by the end of the day Saturday, the government will close its doors for the 22^nd time since 1976.

Many federal functions, including most activity at the Securities and Exchange Commission, would cease while members of Congress figure out a way ahead on government spending.

Advisors were sanguine about a potential default on the federal debt earlier this year, and they’re similarly calm about the possibility of a shuttered government.

Sean Rawlings, founder of Wealthbound Advisors, is telling worried clients to relax when they call him after seeing news about the looming shutdown.

“Our job as advisors is to reset expectations,” Rawlings said. “Not everything we see or hear in the news is as doomsday as it may seem. It’s our job to be a financial therapist sometimes.”

He reassures clients that Social Security payments will continue. He doesn’t plan to adjust any portfolios because “we only invest with long-term time frames in mind.”

It’s not clear how financial markets may react to another political stalemate in Washington.
Even if there’s a downturn, Damsky expects it will be brief.

“It could lead to some volatility,” he said. “But it will course-correct pretty quickly.”

A shutdown would jolt the SEC. The agency would furlough the vast majority of its staff, with only about 437 of 4,600 employees remaining on the job to “protect life or property, including engaging in law enforcement activities,” according to an operations plan posted on its website.

A limited number of staff will be on hand to perform “emergency enforcement matters” and “emergency examinations and inspections.”

Although the SEC will slow down significantly, it won’t go out of business. It can designate certain employees as “excepted” from the shutdown furlough, and they can go on performing their functions.

Amy Lynch saw the wiggle room when she was a staff accountant in the SEC’s examination division during a government shutdown in the Clinton administration.  

“The SEC did not stop working during that time,” said Lynch, president of FrontLine Compliance. “It depends on how they deem employees as excepted. It’s a matter of priorities. Things are fluid.”

How much advisors will feel the impact of an SEC shutdown may hinge on how long the budget stalemate continues on Capitol Hill.

For instance, an examination scheduled for Monday likely would be postponed, but not forgotten, said Dan Campbell, a former SEC assistant regional examinations director.

“It all depends on the [shutdown] time frame,” said Campbell, a director at ACA Group, a compliance consultant. “I wouldn’t expect any exams to be cancelled, just rescheduled.”

Fledgling advisory firms may have the most at stake in a shutdown. The SEC will accept firm registration documents but won’t approve new registrations until the government is back up and running.

“That is a big blow to firms trying to start up their operations,” Lynch said.

The SEC will accept comment letters on proposed rules but won’t post them until government functions resume. The agency won’t issue proposed or final rules during the shutdown.