Many years ago, the comedian George Carlin appeared on the Ed Sullivan show in character as The Hippy Dippy Weatherman. “I imagine some of you were a little surprised at the weather over the weekend. Especially if you watched my show Friday night, man,” joked Carlin.
I always think of the late Carlin's prognostication prowess when I’m pressed to predict election outcomes—an occupational hazard for lobbyists. But as we head into the homestretch of this presidential election cycle, I feel somewhat liberated. For many months it has been a remarkably tight race for the presidency and for control of the Senate, and it has become tighter as Election Day approaches. You could predict an outcome for either side, or a split, in the presidential and Senate campaigns—and hardly be faulted if you guessed wrong. So while election analysis is not part of my expertise, I will make a somewhat bold prediction for how the race for president will be decided. But you’ll have to wait until the end of this blog to read that prediction.
First, why does it matter? Simply put, what Congress, the administration and regulators do—or don’t do—can have a huge impact on how financial services are provided. Intentionally or not, their actions can skew the markets or provide advantages to certain segments of the industry. As I look to next year’s advocacy agenda for FPA, a lot depends on the election and who is placed in key positions.
For purposes of this column, and putting aside readers’ personal politics and the enormity of the fiscal issues the country faces, let’s take a look at the stakes for the financial services sector.
- Republicans should hold the House of Representatives
- Obama-Romney is pretty close to a toss-up at this time
- Whichever party takes the Senate will have the narrowest of margins and needs to work with the other side if they need 60 votes to break a filibuster. And remember, the vice president can break a tie vote in the Senate.
- An additional consideration is the likelihood that Mary Schapiro will step down as chairwoman of the Securities and Exchange Commission (SEC), with the next president naming her replacement.
DOL Fiduciary Rule; Dodd-Frank
Moving onto some specific issues, there is at least one that is fairly clear-cut. The Department of Labor (DOL) has been working on regulations that would expand the application of ERISA’s fiduciary standards for retirement savings. The DOL has been reworking a rule proposal after an initial comment period generated a lot of controversy over how the rule would be applied to Individual Retirement Accounts (IRAs), among other issues. The outcome of congressional elections should have little impact on this issue, as members of both parties have taken issue with the DOL’s proposal. Expect the presidential race to be determinative here: if Obama wins, a rule goes forward, and if Romney wins, it will be shelved.
A little more opaque is what happens with Dodd-Frank: the financial services reform law the Democrats passed in 2010. Many of the law’s provisions have yet to be put in place and others are being challenged in court. Expect some changes, with the election outcome determining the number, type and degree of changes (think “too big to fail,” derivatives and the newly minted Consumer Financial Protection Bureau).
Even a Republican sweep will probably not produce an outright repeal of Dodd-Frank. A Romney presidency will encourage Republicans to take a broader swipe at Dodd-Frank, without having to worry about a veto. But if the Democrats retain a Senate majority, or merely maintain a strong minority position, they will be able to block reforms they oppose, even if Romney wins. Look for Republicans to key in on Democratic senators that may look vulnerable in 2014. If Obama wins, expect a more targeted and different approach to Dodd-Frank reforms. Republicans can use the budget as a means to affect how Dodd-Frank is implemented.
About an SRO for Advisors…
So what about the issue that I spent so much of my energy opposing for the past couple of years (with a lot of help from my friends): a proposal to bring registered investment advisers under the oversight of a self-regulatory organization (SRO)? The issue has been cast as a matter of making sure RIAs are effectively policed, especially in the wake of the Madoff scandal. But with an SRO—likely FINRA—being pushed as a possible solution, it has also become the latest front in a long battle between broker-dealers and RIAs. On this issue, the die has been cast even before the election. Rep. Spencer Bachus, R-Ala., chairman of the House Committee on Financial Services, championed the SRO bill this year before he conceded that it did not have broad enough support. But even with a Republican House victory, Bachus will not be chairing the committee next year because of the Republicans’ term limit rules.
On the other side of the Capitol, Sen. Tim Johnson, D-S.D., chairs the banking committee and has not shown any interest in the SRO issue.
If Republicans take the Senate, will that breathe new life into an SRO proposal? As on the House side, a lot will depend on what the committee chair thinks of the idea. Republicans aren’t inclined to give the SEC more money, even if it’s for RIA oversight and taxpayer dollars are not used. So expect that this issue might bubble up later in the session after Congress deals with some of the bigger fiscal issues first.
Back to the regulatory side, don’t forget that the SEC has authority to require broker-dealers to act in the best interests of their retail customers when providing personalized investment advice. Chairwoman Schapiro has spoken frequently about the importance of the SEC pursuing rules that would hold brokers to the equivalent fiduciary standard as investment advisors [See Schapiro’s latest comments from this week on the issue-Ed.]. It has proven a difficult issue to move forward, even with the Chairwoman’s support, so selection of the next SEC chair could prove to be a make-or-break moment for the fiduciary standard.
There are countless financial services regulatory issues that could be taken up in the next Congress, including some that we can’t predict. Expect a heavy Dodd-Frank focus and maybe a couple of wildcards. Oh, yeah, then there’s Fannie & Freddie. There’s a limitation as to the clarity the election can provide.
And now, the bold prediction you’ve been waiting from the Hippy Dippy Lobbyist: Remember Bush-Gore? Romney wins popular vote. Obama wins electoral vote, including a tight race in Ohio, man. An Ohio recount and allegations of fraud delay the outcome, but Obama holds on for a controversial win.
But don’t quote me on it.