Three key Washington heavyweights will have a crucial role in advisors’ lives next year: the newly christened SEC chairwoman, Elisse Walter; Rep. Jeb Hensarling, R-Texas, the incoming chairman of the powerful House Financial Services Committee; and Phyllis Borzi, assistant secretary for the DOL’s Employee Benefits Security Administration.
Indeed, the Washington landscape has changed somewhat since President Barack Obama was re-elected in November. SEC Chairwoman Mary Schapiro said goodbye in mid-December, but to Wall Street’s chagrin Elizabeth Warren, the architect of the Consumer Financial Protection Bureau, beat out sitting Massachusetts Sen. Scott Brown, and she has since secured seats on the Senate Banking and Senate Health Education Labor and Pensions Committees.
Massachusetts Democrat Barney Frank will also depart at year-end. Rep. Maxine Waters, D-Calif.–who introduced a user fees bill last year to thwart Rep. Spencer Bachus’s legislation calling for a self-regulatory organization to oversee advisors–will assume Frank’s role as Ranking Member on the House Financial Services Committee.
Hensarling made it clear to the Wall Street Journal in mid-December that he views his job as “regulating the regulators”–from the Federal Deposit Insurance Corp. to the SEC to the Federal Reserve.
While industry officials have predicted that Hensarling’s priorities will not include reintroducing in 2013 legislation introduced in 2012 by his predecessor, Bachus, calling for an SRO–namely FINRA–to oversee advisors, don’t count on FINRA and other powerful financial services groups to sit idle.
Despite assertions that Hensarling will put the SRO bill for RIAs “on the back-burner, the influence of FINRA, SIFMA, FSI, the insurance company lobby, and the Wall Street broker-dealer and investment banking lobby should not be underestimated,” says Ron Rhoades, assistant professor and chairman of the financial planning program at Alfred State College. “As seen recently with its offer to act as arbitrator in RIA proceedings, FINRA continues to position itself as the solution for RIA oversight.”
Neil Simon, vice president for Government Relations at the Investment Adviser Association in Washington, told AdvisorOne in recent comments that while Hensarling will focus on “issues of clear national importance, including reform of Fannie Mae and Freddie Mac and reform of certain aspects of the Dodd-Frank Act,” IAA will still “remain active on Capitol Hill to counter FINRA’s continuing effort to become advisors’ SRO.”
However, Rhoades sees the “biggest” short-term development for advisors in the first part of 2013 being EBSA’s reproposal of its controversial rule to amend the definition of fiduciary under the Employee Retirement Income Security Act.
Indeed, Borzi–emboldened by another four years in her position under a re-elected Obama administration–is adamant that EBSA’s fiduciary rule will see the light of day. She told AdvisorOne in early December that EBSA would be releasing its fiduciary reproposal early next year. But Borzi promised that industry concerns have not fallen on deaf ears. Said Borzi: “When people see the reproposal, reasonable people with open minds will say [DOL] listened, that [DOL] addressed the legitimate issues that were raised in the long comment process.” She added: “The reproposal will be better, clearer, more targeted and more reasonably balanced.”
While there’s no question that DOL’s fiduciary reproposal will endure “tough opposition,” Rhoades says, “I believe it will be adopted.”
EBSA’s reproposed rule will be backed by a “substantial economic analysis,” and will likely apply “the strict ERISA fiduciary standard to nearly all those who provide investment advice to either plan sponsors or to plan participants,” Rhoades adds. Even more dramatic, he says, will be the extension of ERISA’s fiduciary standard to cover IRA rollover accounts. “With these moves, ERISA’s standards will apply to over $15 trillion of financial assets held by individuals and in retirement plans in the United States,” Rhoades says.