November 7, 2020
What does former Vice President Joe Biden’s win mean for advisors? Retooled advisor regulation, potentially higher taxes for wealthy Americans and new rules governing retirement plans, experts say.
Certainly, addressing the coronavirus pandemic and economic turmoil will be top priorities for Biden. Beyond that his administration will likely pursue a more investor friendly regulatory approach, according to experts and industry observers. That would represent a sharp contrast to the Trump administration, which has generally rolled back or eased regulations that irked Wall Street.
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The SEC’s controversial Regulation Best Interest is at the top of the list for revision. The rules package, which went into effect earlier this year, changed advisor and broker standards of conduct. Critics — including the SEC’s own investor advocate — charge it tilted the playing field in favor of brokers and poorly defined what best interest means within the context of the regulation, among other criticisms. For example, the Form CRS document firms are now required to provide to clients expressly prohibits RIAs from mentioning that they are fiduciaries.
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Laura Posner, a partner at law firm Cohen Milstein and former bureau chief for the New Jersey Bureau of Securities, notes that the Democratic Party’s platform called for stronger investor protections. Without naming Reg BI, the platform said financial advisors “should be legally obligated to put their client’s best interests first.” The Republican Party did not adopt a new policy platform this year beyond stating it “will continue to enthusiastically support” President Trump’s agenda.
“They were pretty open about wanting to do something on a fiduciary rule for everyday investors. So I think they believe it is a priority,” Posner says.
Still, how a Biden administration would handle regulatory change remains an open question. Revision may not result in wholesale replacement by a Biden-appointed SEC chair.
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Retooling over replacing could be a more efficient path to significant changes, according to Posner. “If they scrap Reg BI entirely, then that is a long process of putting together new regulations, have a new comment period, and have a vote. But if they were to issue guidance on what best interest actually means, they could do that quickly,” she says.
At the Department of Labor, key Trump administration initiatives are likely due for overhaul or scrapping. Secretary of Labor Eugene Scalia, who helped vacate the Obama era fiduciary rule as a private attorney, proposed a replacement for the defunct regulation earlier this year that would align with Reg BI — which is not a fiduciary standard. The proposal and its short 30-day comment period was met with sharp criticism from fiduciary advocates and even some industry trade groups.
The Labor Department has also made moves to expand the presence of private equity in retirement plans and to restrict the use of ESG criteria even as its popularity soars. ESG investing could be an area where the Biden administration makes regulatory changes or even where Congress could get involved, according to Posner.
“You don’t want different and overlapping disclosure requirements,” she says. “I think everyone benefits from uniformity so long as it’s not a race to the bottom.”
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