Why work with us
Offerings for RIAs
- Technology & Platforms
- Investing & Wealth Management
- Business Solutions & Support
- Contact us
All things D.C. — and the state of the States
Skip Schweiss, 04/30/2019
Managing Director, Retirement Plan Services & Advisor Advocacy
How regulatory proposals are evolving for RIAs.
While most of us bemoan the state of gridlock in Washington, there's still a lot of work going on there, and at the state level…enough that it's a good idea for us to stay involved on behalf of registered investment advisers (RIAs). In this post, I summarize some of the ongoing developments for you.
Let's start with the latest: On April 16th the Office of Compliance Inspections and Examinations (OCIE) issued an alert directed at investment advisers and broker-dealers regarding privacy notices. It provides a list of compliance issues related to Regulation SP, the primary SEC rule regarding privacy notices and safeguard policies of investment advisers and broker-dealers. It encourages advisors to review their written policies and procedures. You can find the risk alert here.
With a new Congress, particularly with a changing of the (party) guard in the House, comes a raft of new proposals that may impact the financial industry:
Retirement legislation. A number of proposals are in the works around this topic, including:
|•||An opening up of the Multiple Employer Plan retirement vehicle. Space does not allow for a full treatment of this topic, but it has the potential to make it easier for small businesses to join a larger, multiple-employer 401(k) plan.|
|•||Raising the required minimum distribution age from 70 ½ to 72. Wouldn't it be wise to index some of these laws for changes in life expectancy?|
|•||Liberalization of automatic enrollment and automatic escalation of retirement plan contributions|
|•||Protections for employers offering annuities as lifetime income options for retiring employees|
|•||Allowing people to contribute to IRAs past the age of 70 ½|
We're feeling positive about the substance of the proposals here, as well as about their chances of moving through the legislative process. That's thanks to broad bipartisan support. We've been pushing for some of these provisions for years, and are more optimistic than ever about the odds of them passing in this Congress.
Transaction tax. Proposals have been introduced in both chambers of Congress around a transaction tax. Mostly centered on enacting a 0.1 percent tax on securities trades including stocks, bonds, and derivatives, the intent is to raise what is perceived as much-needed revenue. Billed as a tax on Wall Street, this tax would more likely hit investors. For a real example, a 10bp tax on the average TD Ameritrade retail trade of $10,000 would result in a $10 tax. TD Ameritrade charges $6.95 for a trade, so certainly could not pay a $10 tax on $7 of revenue. So that tax would land on the investor. We think this is a bad idea, and continue to voice that with policy makers. Consensus in the reporting on this is that it is unlikely to advance.
Tax on unrealized capital gains. We're not sure how an investor is supposed to pay tax every year on his or her unrealized capital gains, but that has been proposed on the Hill. This is very unlikely to advance.
Wealth taxes. We're also seeing proposals for "wealth taxes" on individuals with a net worth above certain (high) thresholds. This is very unlikely to go anywhere, but very likely to be presidential campaign fodder.
Shifting from the legislative front to activity around regulatory issues, the Department of Labor's Conflict of Interest Rule brought standards of care into the mainstream consciousness for the first time. When that rule was struck down by the courts, some states started moving ahead on their own laws and regulations in this area. A good summary can be found here.
Security & Exchange Commission (SEC) Regulation Best Interest ("Reg BI")
In April 2018 the SEC proposed this package of proposals that would 1) hold brokers to a 'best interest' standard of care; 2) mandate a new Client Relationship Summary (CRS) document be provided to clients by both brokers and RIAs; and 3) clarify some provisions of the '40 Act applicable to RIAs. While RIAs tell us they aren't concerned about this, we're still keeping a watchful eye on it. The SEC is aiming to finalize this proposal this year, possibly for an effective date sometime in 2020. Learn more about Reg BI by reading our whitepaper here.
The SEC has had an open Commissioner seat since the first of the year. The Trump administration has now nominated Allison Lee to fill the open seat, reserved for a Democrat. As of this publication Ms. Lee's nomination has not yet been confirmed by the full Senate. You can find more on Ms. Lee here.
SEC's Advertising Rule
Also high on the SEC's priority list is the updating of its 1960s-era advertising rule. It's possible it will allow for testimonials through social media. We are working with our partners in the industry, including the Investment Advisor Association (IAA), to pull this policy into the 21st century.
So, like the duck looking so placid swimming across the water, there might not seem to be much happening on the surface. But look below the surface – as you have if you've made it this far through this post – and you can see a LOT of activity. As always, we'll keep our finger on the pulse of it, weigh in when needed, and keep you posted on what happens.
Content provided is for educational purposes only and is not intended to be advice for any firm.
Call 800-934-6124 and talk to one of our experienced consultants today.
Complete this form
And we'll reach out to start the conversation.
Thank you for your interest. We treat each inquiry with the highest confidentiality. We're getting your question into the right hands and someone will be in touch with you shortly. We look forward to helping you.