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…