November 7, 2012

The Morning After…

The dust is starting to settle after the most expensive elections in U.S. history. According to the non-partisan Center on Responsive Politics, the total cost of the 2012 elections will come close to a staggering $6 billion—with about $2.5 billion of that expended on the race for the White House.

If you’re anything like me (a simple guy from Kansas), don’t you agree that it would have been better to have spent all that money on a nice down payment for building a flood wall in lower Manhattan?  Whatever your views are on global warming, at least we could all point to something, well—concrete—that we accomplished together.

As a long-time resident of the Commonwealth of Virginia, I also can tell you that I’m very, very relieved that the onslaught of political television commercials should abate—at least temporarily. Two weeks ago, the Wesleyan Media Project reported that more than 915,000 presidential ads had aired on broadcast and national cable television since June 1—a 44.5% increase from the 637,000 ads aired during the same timeframe in 2008. And that was with two weeks left to go. I feel as if I’ve seen every one of those ads. If you live in a battleground state, you know that most have been negative (on all sides), which has contributed to bad feelings all around.                

So enough venting already…it’s easy enough to feed into the rampant cynicism about the sorry state of our nation’s political discourse. Let’s instead talk briefly about what the results of the elections will mean for the investment advisory profession. And how can we move the ball forward—for your businesses and your clients—during the coming months and weeks?

In my last blog, I emphasized that individuals appointed by the president to run the departments of Treasury and Labor, SEC, CFTC, and other regulatory agencies will have a big impact on policies and programs governing the investment advisory profession. Now that President Obama has been re-elected, it will fall to him to figure out who will replace Treasury Secretary Tim Geithner and SEC Chairwoman Mary Schapiro (both of whom are likely to call it quits in the near future), and whether Labor Secretary Hilda Solis (and Assistant Secretary Phyllis Borzi) will continue at DOL and Chairman Gary Gensler at the CFTC.

Whatever choices the president makes will have a profound impact on the regulatory agenda for investment advisory businesses. You can call me a coward for not making predictions about who will be appointed and what their agenda will be. But my 25 years in Washington, DC, have taught me that such political appointments are extremely difficult to predict—and that predicting those appointees’ ultimate track record is even more tenuous.

Perhaps the biggest irony of the elections is that, after all is said and done, we’re essentially ending up back where we were on both ends of Pennsylvania Avenue: Obama in the White House; Harry Reid and more than 50 Democrats and Independents trying to find a few votes from the other side of the aisle in the Senate; and the House in the hands of a slightly diminished Republican majority. 

In terms of legislation that will directly affect investment advisory firms—such as the Bachus SRO legislation that failed to move this year—a split in control of the U.S. Congress may be the best prescription for avoiding extreme legislation and fostering more intelligent discussions about potential legislation. Don’t get me wrong—there is always the chance for ill-advised legislation to move forward if some scandal occurs. But absent that type of scenario, the cards that have been dealt should favor a more subdued environment for potentially game-breaking developments on Capitol Hill. Ultimately, the Senate will still be the key in deciding what legislation, if any, will move to the president’s desk.

The most telling bellwether of what these elections mean may be how—or perhaps whether—the Congress and White House deal with the rapidly approaching fiscal cliff.  Most investment people I talk with (and most of them tend to be Republican) would favor a “grand bargain” that deals with essential adjustments that need to be made in Social Security, Medicare and other entitlement programs; seeks to reduce other federal spending; and, yes, includes some type of additional tax revenue. These are the biggest issues that are restraining our economy from the robust rebound that many economists feel is poised to occur.  

Given the results of the election, it seems to me that all of our political leaders should understand that our country continues to have deep political divisions. Compromises will not be easy, but trying to bridge the gap is the only responsible course of action. I believe the American public will reward leaders who are willing to recognize the necessity of finding solutions, who are willing to tell the truth, and who will reach across the great political divide to discuss potential options.      

And, while I’m up here on my high horse (at midnight on election night), don’t forget that you and I have to bear responsibility for engaging with our elected representatives and other governmental officials.  Considering its size—more than 10,000 businesses that employ more than 750,000 people and advise more than 23 million individual and institutional clients—the investment advisory profession has not done a good job of educating and informing our elected and nonelected policymakers about who we are, what we do, and how their decisions affect our business. It may sound corny, but we need to take steps to join together to make a difference on issues that affect our profession—not by being spectators, but by rolling up our sleeves and making our collective voice heard.

As always, I welcome your views and perspectives.

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