Dec 7 Changes in two powerful U.S. legislative
committees could alleviate worries among financial advisers
about far-reaching plans for reforms that would impact how they
New leaders of the committees that have the most influence
over the securities business - the U.S. House of Representatives
Financial Services Committee and the U.S. Senate Committee on
Banking, Housing and Urban Affairs - likely spell further delays
for planned industry reforms.
Two key issues affecting financial advisers that could be
left unresolved for even longer: more frequent examinations of
certain advisers who register with the U.S. Securities and
Exchange Commission, and beefed-up ethical standards for
brokerage firm advisers.
The House Financial Services Committee, which has
jurisdiction over issues pertaining to the nation's financial
markets, discussed legislation in June that would establish a
self-regulatory organization for registered investment advisers.
But leadership changes could steer the committee to an
entirely different focus, say Washington insiders. Changes in
the Senate Banking Committee could also mean efforts by the
Securities and Exchange Commission to revamp broker client care
standards will remain bogged down.
Committee chairmen set the agenda for what the groups will
address. "It's the power of the gavel - the ability to determine
which issues will be considered and which will not," said David
Tittsworth, executive director of the Investment Adviser
Association, a trade group representing more than 500 investment
advisory firms that would be impacted by oversight reforms.
Leaders of the Senate Banking Committee are likely to keep
stricter ethical standards for brokers at bay.
At issue: requiring brokers who give personalized investment
advice to act in their clients' best interests, a fiduciary
standard, as investment advisers must do. Brokers now need only
recommend securities that are "suitable" for clients, based on
factors such as risk tolerance and age. For example, they can
sell a product on which they earn a bigger commission if it
meets the criteria, even if an equivalent product is cheaper.
An alliance between Senate Banking Committee Chairman Tim
Johnson, who will remain in the post, and the Idaho Republican
expected to clinch the top Republican slot, Senator Michael
Crapo, could mean extra scrutiny of SEC's reform effort.
Johnson, a Democrat from South Dakota, and Crapo, joined
forces in 2010, when a fiduciary standard for brokers appeared
in an initial draft of what later became the Dodd-Frank
financial reform law. They were concerned about potential costs
to the industry and were successful in getting lawmakers to
substitute a provision for the SEC to study the issue, but not
require a rule.
Since that study in 2011, the rule proposal has stalled.
If rules are proposed, Jill Hoffman, assistant vice
president of government relations at the National Association of
Insurance and Financial Advisers, said she expects that Johnson
and Crapo "will be very careful to make sure the SEC has done
it's due diligence."
Concerns about strengthening oversight of the roughly 11,000
SEC-registered investment advisers could also take a back seat
under Republican Texas Representative Jeb Hensarling who will
take over as chairman of the House Financial Services Committee.
He is best known to lobbyists for his housing policy concerns.
Housing could be a priority for Representative Maxine
Waters, a Democrat from California, who was elected on Tuesday
to become the committee's top Democrat. She has also been vocal
on adviser issues but could be sidetracked if the committee's
attention turns to housing.
There is wide agreement that investment advisers need to be
examined more often. The SEC examines them about once every 11
years, while the Financial Industry Regulatory Authority, the
brokerage industry's self regulator, examines brokerages, on
average, about once every two years. But there's little
agreement about how to get there.
Waters, in July, introduced legislation that would require
certain investment advisers to pay fees to the SEC to help fund
regulatory examinations of their businesses. It went nowhere.
Outgoing House Financial Services Committee Chairman Spencer
Bachus, a Republican from Alabama, embraced the idea of creating
a private self-regulatory organization for investment advisers.
He remains on the committee, but will no longer be the chairman.
Republicans would likely block any renewed user-fee
legislation by Waters, said Tittsworth. A self-regulatory
initiative could also stumble, even if passed by the House, said
Brian Graff, chief executive of the American Society of Pension
Professionals & Actuaries. Many Democrats in the Senate would be
reluctant to pass legislation that takes power away from the