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Regulation and Compliance > Federal Regulation > SEC

Head for the Hill

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It’s a complaint that Skip Schweiss has heard more than once from lawmakers on Capitol Hill when lobbying on behalf of advisors: “‘We hear from the insurance companies and broker-dealers all the time, but we don’t hear from the investment advisors. Where are they? We need to hear from them.’”

That’s what Schweiss, TD Ameritrade Institutional’s managing director of advisor advocacy and industry affairs, relayed to me in an interview after TDAI held its Advocacy Leadership Summit in Washington in early October.

TD unveiled at the event its new advocacy tool for advisors,, which allows advisors to access summaries on pressing issues impacting the industry, and to submit comments to regulators as well as lawmakers.

TD will “periodically highlight issues as they come up,” Schweiss said, particularly those being considered by Congress, as well as post position papers and sample letters that advisors can use to send to lawmakers.

Quite a few advisors attending the Summit signed up for the tool on site, Schweiss reported. “One told us it took him 60 seconds to sign in, send the letter [to his congressperson] and be done,” Schweiss said. “We know advisors want to be able to weigh in, but they don’t have a lot of time to do so. So [any advocacy tool] needs to be efficient.”

Top lobbyists for the Investment Adviser Association and the CFP Board agree that the advisory industry is in a David and Goliath advocacy fight. “There’s no doubt that we remain outgunned by the brokerage and insurance industries,” said Neil Simon, vice president for government relations at IAA.

Marilyn Morhman-Gillis, managing director of public policy and communications for the CFP Board, added that members of the Financial Planning Coalition — which includes the CFP Board, the FPA and NAPFA — are engaged through separate lobbying efforts as well as combined efforts through the Coalition, but unlike the deep-pocketed BD and insurance industries, “we can’t spend millions of dollars” on lobbying.

Playing Catch Up

The insurance and brokerage industries, Simon added, “have had very well-funded advocacy programs, both direct funding and grassroots, for decades. We are still playing catch up, and it is still a David and Goliath battle. But David ultimately didn’t do too badly.”

Indeed, Simon said that IAA is focused on increasing advisors’ grass roots capability, and “frankly, we’re quite gratified with the growth of political involvement and engagement with advisors,” noting IAA’s lobbying day on Capitol Hill is growing and effective.

When advisors return to Capitol Hill for their annual pilgrimage, lawmakers as well as their staffs know who they are and know the issues, Simon added. “We are seeing progress. Is it enough? No.”

The biggest fight the advisory industry has faced has been in lobbying related to the Department of Labor’s rule to amend the definition of fiduciary under ERISA. While the insurance and brokerage industries have engaged in an “expensive” lobbying campaign to thwart the rulemaking, said Mohrman-Gillis, “the common sense and rational arguments in support of the DOL rule are starting to break through the clutter of misinformation that has been communicated to policymakers” from the BD and insurance groups.

Case in point: The number of Democrats supporting Rep. Ann Wagner’s bill that would make the DOL wait to issue its rule until the SEC moves on its own rule garnered support from only one Democrat at its recent House Financial Services Committee markup.

More ‘Factual Advocacy’ Has an Effect

Despite the lack of Democratic support, Wagner’s bill, the Retail Investor Protection Act, passed out of the House Financial Services Committee and was referred to the full House. When it was initially floated in 2013, Wagner’s bill had the support of 13 committee Democrats.

Mohrman-Gillis attributes the dwindling support for Wagner’s bill to “more factual advocacy” from the advisory industry regarding DOL’s rulemaking, which she said has caused members of Congress to shift from their initial positions on Wagner’s bill.

Wagner, R-Mo., blamed her nemesis, Sen. Elizabeth Warren, D-Mass., in an Oct. 14 op-ed in The Hill newspaper for helping torpedo Democrat support for her bill. Warren, Wagner wrote, “seems to have firm control over Democrats” in the House, “despite serving on the other side of the Capitol.”

Wagner argued that Warren, a proponent of DOL’s proposed rule, demonstrated her influence during the markup of Wagner’s bill that she said would “stop the Department of Labor from implementing” its rule.

The next challenge for the advisory industry will be influencing the SEC’s upcoming rule on third-party audits for advisors. SEC Chairwoman Mary Jo White has stated that such audits to boost the number of advisor exams will be on the agency’s agenda.

Simon said the SEC staff is “hard at work” on such a rule.

Efforts to get support for a user-fees bill to help boost advisor exams hasn’t made any progress in a couple of years, noted Schweiss, though “we still hold out hope.” Meanwhile, while the SEC gets “more money every year, [the agency] is not allocating it to increasing advisor exam frequency.”

Schweiss said that “once every 11 years isn’t often enough” for advisor exams, and that the lack of exam frequency is “resonating in DC.”

So White has set her sights on using third-party audits (an idea that’s been floated before) to boost these exams.

The SEC is mulling a system in which “the advisor retains the third party,” said IAA’s Simon. “Presumably, the SEC would put out some standards” on what type of auditor an advisor could use. “Conceptually, it could be FINRA.”

Schweiss added that a variety of organizations could potentially qualify as third parties, with the SEC offering a “menu” of examiners. “If I’m a dual registrant, maybe I choose FINRA,” he said. “Maybe pure RIAs choose a PCAOB accounting firm.” Any audit, however, would have to focus on where the clients’ assets are, he said: “Do they match the statements?”

A third-party auditor could conduct “a checklist-based exam so they wouldn’t impose their own rulebook,” Schweiss speculated, but rather could be “just an extension” of a typical SEC exam.

Harvey Pitt: DOL Fiduciary Rule Faces Tough ‘Row to Hoe’

While the Department of Labor is ahead of the SEC in writing a fiduciary rule, DOL will have a “much harder row to hoe than it seems” in getting its fiduciary rule finalized and implemented, predicts former SEC chair Harvey Pitt.

DOL “may be ahead now” regarding a fiduciary rule, “but I’m not sure they’ll finish ahead,” Pitt told IA on the sidelines of TD Ameritrade Institutional’s Fiduciary Leadership Summit in Washington in early October.

Once DOL proposes its rule, Pitt said, “there will be a lot of behind-the-scene discourse to try to accommodate the disparities that exist” between DOL and SEC. “We saw that in the swaps regulation with the SEC and the CFTC; they regulate the exact same conduct differently.”

Pitt, like former SEC chiefs Christopher Cox and Mary Schapiro, agreed at the Summit that the SEC must move on its own fiduciary rulemaking. “I feel very strongly the SEC needs to move forward” on a fiduciary rule and “do it now,” said Schapiro, who tried but failed during her 2009–2013 term to get a fiduciary rulemaking passed. However, Schapiro said, “I don’t blame DOL for not waiting for the SEC at all,” adding that she believes the SEC should “take the lead […], but they haven’t.”

While an SEC fiduciary rulemaking “should be done,” Cox agreed, it’s hard for the agency to move ahead “because there are enormous competitive issues contending.”

Skip Schweiss, TDAI’s managing director of advisor advocacy and industry affairs, pointed out that while current SEC Chairwoman Mary Jo White has said the commission will deal with a fiduciary rulemaking in 2016, “it’s an election year” and two SEC commissioners are already departing. So when the new administration takes hold in 2017, the SEC will likely have “a different makeup,” he said. Schweiss said that since SEC rules “can take years to develop and finalize, I’m not holding my breath for a uniform fiduciary standard to come out of the SEC.”


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