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Regulation and Compliance > Federal Regulation > SEC

Implications of Tax Bill Process for Advisors: David Tittsworth

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In a conversation Thursday on the mid-term Election Day in November, David Tittsworth recalled that SEC Chairman Mary Schapiro told him that her biggest concern was resources. Would the SEC have the money, Schapiro fretted, to accomplish the many tasks it had been assigned under Dodd-Frank? The answer is still uncertain.

As the House of Representatives neared passage on Thursday of the tax bill that would extend the Bush-era tax cuts and long-term unemployment benefits, Tittsworth, the executive director of the Investment Adviser Association (IAA), reflected on what the political process around the tax bill suggests may be coming next in terms of legislation and regulation from Washington. He also laid out likely scenarios on how advisors and their clients will be affected by the politics, lawmaking and regulation still to come in Washington.

One major issue, contended Tittsworth, who has spent more than a quarter-century in Washington as an attorney and advocate and as a staff member to several congressional committees, is what Schapiro and her agency will have to deal with in terms of a budget and oversight of Congress. The federal government has been working under a continuing budget resolution, but on Wednesday, the Democratic leadership finally floated an omnibus appropriations bill, under which, Tittsworth said, the SEC would be given $1.3 billion in the current fiscal year, which runs through Sept. 30, 2011.

“That would be a good number for the SEC,” said Tittsworth, but the Washington insider admitted that he has “no idea what's going to happen” with the appropriations bill, or when. “I’m not sure how this lame duck session will end,” he said, “but my sense is that they'll try and wrap things up here before Christmas.” He did mention that Senate Majority Leader Harry Reid (D-Nev.), however, “is talking that he may bring them back” for a session between Christmas and New Year’s, which Tittsworth said would be “almost unprecedented.”

As for SEC funding levels and why that’s important to advisors, Tittsworth said “Chairman Schapiro is being bold in saying we don’t have the money to do this,” even to the point of literally listing online at the SEC website various provisions of the Dodd-Frank financial services reform bill that the Commission says it must postpone implementing until its budget situation is resolved. “Dodd-Frank is a game changer,” he said, with “the irony being that a lot of the work for the SEC is right now; it's upfront—100 rulemakings, dozens of studies, many of them coming up right now,” when the SEC does not have the resources.

“If a doubling of the appropriation for the SEC would become a reality, as called for in Dodd-Frank,” Tittsworth says, “that would be great,” and “much better than what they're working with right now.”

As for whether the new Republican leadership will lean in that direction, he admitted, that he can't read whether they'll fund the SEC fully or not. What he does expect is a spate of hearings in the new Congress on Dodd-Frank from Republicans who felt that many provisions of the bill “were rushed through without adequate consideration.”

Despite the potential for political grandstanding at such hearings, Tittsworth said that might in fact be a positive development: “A better informed Congress makes better decisions.” He did predict, however, that there “won't be significant increases for Federal activities over the next few years.” 

The funding issue, he said, “goes directly to the issue of whether there will be 


an SRO for investment advisors,” suggesting the real possibility that the SEC will ask Congress, as Dodd Frank gives it the latitude to do, “Please give us the authority to create an SRO for advisors!”

As for the tax bill itself, Tittsworth prefaced his comments with a self-effacing disclaimer—“I'm not an economist, just an idiot attorney”—but said that “if there weren't some sort of compromise, there could have been serious repercussions to the economy,” noting what many economists have suggested about the continued “fragility” of the U.S. economy and markets.

He characterized the compromise between President Obama and the GOP leadership as a “good news, bad news agreement,” which “just kicks the can down the road,” missing a “real opportunity” to take action toward “meaningful deficit reduction.” Moreover, that can will need to be considered again, he pointed out, in another election year two years from now, when many of the extensions in the bill sunset.

“This deal,” he said, “just adds to the deficit…so all those decisions are once again postponed.”

He made another interesting point on the deal itself that brought the tax bill to passage in the Senate and likely in the House later today: “Obama makes a compromise with the Republican leadership, but Reid and Pelosi were not in the room,” referring to the Democratic leaders in the Senate and the House.

What else should advisors be watching on the regulatory and legislative front? “At the micro level,” he said, are issues like "the new Part II of Form ADV, and proxy voting requirements under Dodd-Frank.”

In closing, Tittsworth returned to SEC funding. “This whole debate about federal funding,” he warned, “can have enormous consequences for advisors—FINRA becoming an SRO; the SEC getting more resources; and private fund advisors being brought into the SEC fold.”


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