Investment Adviser Association, Schwab press lawmakers for tax-reform adjustments to help advisers

Groups seek to restore deductibility for advisory fees and expand eligibility for pass-through benefits
MAR 22, 2018

Advocates for investment advisers are pushing for changes to last year's sweeping tax-reform legislation that they say will benefit advisers and their clients. The Investment Adviser Association and Charles Schwab & Co. Inc. recently launched an effort to bring advisers to Capitol Hill to talk to lawmakers and their aides about two modifications to the measure. One would restore a limited tax deduction for advisory fees and the other would expand the eligibility for special tax treatment of sole proprietorships and partnerships to include advisers. The tax-reform bill eliminates a tax deduction for advisory fees that exceed 2% of a client's adjusted gross income. The measure also excludes many in the service sector, including investment advisers, from a 20% pass-through tax deduction if they make more than $157,500 as an individual or $315,000 jointly with their spouse. Martine Lellis, chief operating officer at the advisory firm Sullivan Bruyette Speros & Blayney, met earlier this week with aides to Reps. Barbara Comstock, R-Va., and Peter Roskam, R-Ill. "I think these are important issues for our profession and our clients," said Ms. Lellis, whose firm is based in McLean, Va. She told Capitol Hill staffers that the elimination of the tax deduction for advisory fees puts advisers at a disadvantage compared to brokers, whose commissions can be added to the price of an investment and potentially lower future capital gains taxes. Ms. Lellis also made the case that advisers should be able to take advantage of the pass-through deduction, which is mostly targeted at manufacturers, because their firms contribute to their surrounding economies. "We're enterprises that exist to create jobs," she said. There had been some hope among advocates that the fiscal 2018 spending bill that Congress will vote on later this week could contain the tax changes for advisers. It did include one so-called technical correction to the tax bill involving the tax treatment of agricultural cooperatives. "We'll have to find some other vehicle," said Jeff Brown, Schwab senior vice president of legislative and regulatory affairs. "Maybe at some point there will be a deal [into which] we can insert the RIAs' concerns. You have to keep going back to the well, and bringing in [advisers] from the members' districts and having them tell their stories." Spokeswomen for both House Ways and Means Committee Chairman Kevin Brady, R-Tex., and Senate Finance Committee Chairman Orrin Hatch, R-Utah, said that the lawmakers are open to hearing from people who want to modify the tax-reform bill. "We're in receiving mode on all issues that may require technical corrections to the tax bill," Julia Slingsby, communications director for the Ways and Means Committee, wrote in an email. But what the adviser advocates are seeking might amount to more than a technical correction — and require more time to achieve. "Although there is a slim chance that Congress could address these issues [this year], more realistically what we are doing is laying a foundation for an effort in the next Congress, when it's more likely there will be legislation to address the unintended consequences" of the tax-reform bill, said Neil Simon, IAA vice president for government relations. "It behooves advisers to make their voices heard now." Regardless of the timeline, any bill to tweak tax reform will require Democratic support to overcome a filibuster in the Senate. So far, Democrats have shown little appetite to help amend an overhaul of the tax measure, on which they say they had little input. "I don't think the issues we're raising fall along partisan lines," Mr. Simon said. "I hope we'll gain support on both sides of the aisle."

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