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Advocates Losing Ground in Fiduciary, User Fee Battle

WASHINGTON -- When advisors make their case to members of Congress on issues like practice exams and fiduciary rules, they sometimes feel as if they're playing David to Wall Street's Goliath.

"We're kind of neophytes out there and we've got a long way to go," David Tittsworth, president and chief executive of the Investment Adviser Association, said this week at TD Ameritrade Institutional's fiduciary conference.

Tittsworth's group recently organized a forum in Washington, D.C., for advisors to meet with their members of Congress and staffers to advocate for issues like legislation to give the SEC the authority to collect user fees from RIAs to conduct more frequent exams.

By the SEC's own count, commission examiners visited just 9% of RIAs in fiscal 2013, and some 40% of registered advisors have never been examined, figures that Tittsworth called "totally shameful." SEC leaders have identified the examination division as a priority as they make their case to Congress for more funding, though that seems a dim prospect in the current budget environment.


The FPA organized a similar but separate gathering earlier this year, pressing for some of the same issues as the IAA, including support for the user-fee bill and the uniform fiduciary standard for broker-dealers and RIAs that the SEC is considering.

But when FPA leaders and members sat down for their meetings, it quickly became clear that the countervailing forces in the fiduciary debate had already made their voices heard on Capitol Hill.

"One thing we can tell you is our opposition was there before us," says Karen Nystrom, FPA's director of advocacy. "We heard over and over again the argument that if a fiduciary standard were extended to broker-dealers the middle market would be hurt."

Advocates of a uniform fiduciary standard have been frustrated by the slow movement on the issue at the SEC, where Chairman Mary Jo White has directed staffers to develop a menu of options for how to address the investor confusion associated with the uneven regulatory models that govern advisors and brokers. The SEC has been considering how to proceed on the issue since the enactment of the Dodd-Frank Act, which authorized -- but did not mandate -- the commission to harmonize the regulatory regime for RIAs and BDs.

Marilyn Mohrman-Gillis, managing director of public policy and communications at the CFP Board, credits the brokerage lobby for its work in effectively "communicating that the sky will fall if the fiduciary standard is imposed on broker-dealers."


Knut Rostad, president of the Institute for the Fiduciary Standard, offers a blunter assessment.

"I think the first thing we've got to recognize is we're losing," Rostad says. "And we're losing pretty badly."

But hope springs eternal. Advocates are urging advisors to make their voices heard on the fiduciary standard and user-fee legislation, and see benefit in keeping pressure on policymakers, even if they're fighting an uphill battle. "Advocacy is cumulative," Nystrom says.

Opponents of the user-fee proposal have called for legislation that would authorize the SEC to name one or more self-regulatory organizations to take on some of the responsibility for examining advisors. Critics of that plan warn that the most likely SRO to fill that role would be FINRA, in which they see a rules-based approach to oversight that is ill-suited to the advisory sector.                                                                                     

Mohrman-Gillis sees a measure of urgency in the examination issue, warning that the lax oversight of the RIA segment creates a hospitable environment for bad actors.

"I think that there's a recognition in the advisor industry that the current level of examination is a ticking time bomb, and that it's not good for the industry as well as not good for the consumer," she says. "And so I think there's a willingness for advisors to step up to the plate."

Recent movement on the issue, modest as it's been, has been in favor of the user-fee camp. In July, Rep. Spencer Bachus (Ala.) became the first Republican to sign onto a bill that would empower the SEC to fund exams through the fees. That marked a remarkable change of course for Bachus, who in the last congress chaired the financial services committee and had authored legislation that would authorize the SEC to tap an SRO for exams.

The IAA's Tittsworth says that change of course was nothing short of miraculous, though he acknowledges that the efforts to advance user-fee legislation in the House -- and produce a companion bill in the Senate -- will at least spill into next year.

"We're still trying to get bipartisan legislation, similar legislation, introduced in the Senate. There's some progress there, but it has not happened," Tittsworth says. "I'm not here to tell you that it's going to pass this congress. I'm not quite that crazy."

Kenneth Corbin is a Financial Planning contributing writer in Washington.

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