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COMPLY-U.S. committee shakeups may further delay adviser reform
December 7, 2012 / 8:01 AM / in 5 years

COMPLY-U.S. committee shakeups may further delay adviser reform

Dec 7 (Reuters) - 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 do business.

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 SEC.

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