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Regulation and Compliance > Federal Regulation > SEC

TD Ameritrade Exec: Advisory Fee Tax Deduction Needed More Than Ever

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In this “unprecedented time of mass unemployment,” the advisor services tax deduction that was eliminated as part of the sweeping tax overhaul that went into effect in 2018 is needed by struggling Americans and should be restored, according to Skip Schweiss, managing director, Retirement Plan Solutions and Advisor Advocacy at TD Ameritrade Institutional.

“Now more than ever, Americans need financial planning and investment advice help and we think that they ought to have a tax deduction to access that help,” he said Thursday during a Live Q&A Washington policy update webinar.

Before the tax overhaul, the deduction was allowed only for taxpayers whose advisory fees exceeded 2% of adjusted gross income (AGI).

The deduction “ought to be available to everybody,” including the “35 million people who have lost their jobs” so far during the COVID-19 pandemic, he said.

This is “something we’re really pushing” for, he said, noting TD Ameritrade joined a letter-writing campaign to push for it with the Financial Planning Association, Investment Adviser Association and other groups that have been directing clients to send letters to elected representatives in Congress to convince them to support the deduction’s restoration.

Professional services firms including RIAs are also among the companies who did not benefit from the law’s pass-through tax dreduction of 20% that many companies were allowed to claim, he said, noting his firm continues to push for a change there also.

“We have been making our views known to Congress…. that we really think that should apply” to advisory firms also, and it’s something “we continue to work on,” he said.

SEC Reg BI Deadline Approaching

On the Securities and Exchange Commission’s Regulation Best Interest front, Schweiss said it’s been the “culmination of a long and twisted road in terms of raising the standards of care for investors.”

Of Reg BI’s Client Relationship Summary form requiring advisors and brokers to list information including the services they provide, potential conflicts of interest and how they are compensated, he advised: “You’ve got two pages to describe all of those things. That’s going to be a challenge. But you have to do it.”

Although it was finalized by the SEC more than a year ago and it’s going into effect June 30, “we’re just now starting to get some inquiries from advisors about it,” he said, noting “some have put it off.” He advised advisors and brokers to go forward with it fast and file the form with the SEC, send it to all current clients and start using it June 30 with all new clients.

Despite ongoing Reg BI legal challenges, he said: “I would definitely prepare for it to be effective on schedule.” That challenge — in the form of a lawsuit by eight attorneys general and the XY Planning Network — could be decided around June 30, he conceded, adding: “That could create some chaos if the court decides to overturn the rule in whole or in part. But there’s no way if I’m an advisor and I’m running an advisory firm that I’m waiting to see what happens with the lawsuit to see what I might need to do or not do to get into compliance. I would absolutely be moving headlong into getting into compliance with it and then we’ll see what happens with the litigation.”

Coronavirus Spending

Regarding the federal government’s ongoing efforts to deal with the COVID-19 pandemic, he said the money spent and being proposed is “kind of staggering.”

We have “already passed $2 trillion in coronavirus-related appropriations,” and the new Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act proposed by House Democrats early this week “has a $3 trillion price tag attached to it,” he noted. Therefore, if the latest bill passes “in its current form, you’re talking about $5 trillion of coronavirus-related spending against a $4.5 trillion entire federal budget for the year,” he said. The HEROES Act, however, is not likely to pass because Republicans have already vocally opposed it.

Advertising Rule

“There’s a lot of good things” for advisors, meanwhile, in the SEC’s proposed updates to its Advertising Rule, announced late in 2019, that would let advisors use testimonials, endorsements and third-party ratings to solicit clients, subject to certain conditions. For example, “you can advertise your investment performance as long as you, in addition to gross performance … show net of fees and you show like one-, five- and 10-year performance, not just selectively” what you did in certain periods, he said.

Advisors would also be able to “employ paid spokespeople to provide testimonials to you as long as [it’s] disclosed that this person is a paid spokesperson, so it kind of puts an advisor in the same camp as a lot of other products and services who hire paid spokespeople,” he noted. Advisors can also advertise third-party ratings under the proposed updates, he said, noting they had previously been “curtailed” from promoting their services.

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