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— CEO, $1.2B AUM
The 2018 Year in Review provides an overview of the Association and its accomplishment during the year.
Registered investment advisers abide by principles of fiduciary duty that put the client first. These principles are incorporated in the Standards of Practice endorsed by IAA members.
The statutory framework of the Investment Advisers Act of 1940 has proven remarkably robust in protecting investors while allowing the advisory profession to grow to benefit investors, the capital markets, and the U.S. economy. However, the financial services landscape has evolved significantly over the last 80 years, and certain of the regulations adopted pursuant to the Advisers Act have not kept pace with these developments.
Among other things, the IAA has long advocated modernizing the advertising rule – adopted in 1961 – and replacing it with a principles-based approach that better reflects modern communications and investor needs for meaningful information. We are pleased that the SEC proposed changes to the advertising rule last November, consistent with a principles- based approach. We submitted extensive comments and have continued to engage with the SEC on the proposal’s potential effects on advisers in practice and ways it can be improved. We expect that the SEC will issue a final rule later this year.
We also support and are engaged in efforts to: update the needlessly complex custody rule to facilitate advisers’ compliance and more effectively protect investors and are pleased that the SEC is working on a proposal to amend this rule; broaden the definitions of “accredited investor” and “qualified institutional buyer” (beyond what the SEC proposed in December) to provide investors with greater choice regarding their investment options; streamline and update the pay-to-play rules on political contributions; and refashion the SEC’s outdated framework for electronic delivery. The IAA supports the DOL’s recent adoption of a rule that permits electronic delivery of certain retirement plan information.
The IAA has long advocated that all financial professionals who provide investment advice about securities to clients should be required to act pursuant to fiduciary principles. The SEC adopted a comprehensive rulemaking package in June 2019 that is intended to raise the standard of conduct for broker-dealers, reaffirm investment advisers’ fiduciary duty under the Advisers Act, and reduce investor confusion as to the services offered by – and standards applicable to – their financial professional.
The IAA has worked closely with its members to help them implement the new “client relationship summary (Form CRS)” disclosure document for retail investors, which went into effect on June 30. We will also continue to advocate before the SEC to ensure that its interpretation, implementation, and enforcement of this rulemaking package preserve the overarching Advisers Act fiduciary duty, hold financial professionals to a robust investor protective standard, clearly delineate the essential differences between brokerage and advisory activities, and are effective in achieving the SEC’s goals for Form CRS.
The IAA is also engaged on the DOL’s proposal for a new prohibited transaction class exemption for investment advice fiduciaries. This proposal follows the withdrawal of the DOL’s 2016 fiduciary rule after it was vacated by the Court of Appeals for the Fifth Circuit.
The IAA also continues to closely monitor state efforts to impose their own fiduciary rules on financial professionals to ensure that these rules do not affect federally-registered investment advisers and their representatives. The National Securities Markets Improvement Act of 1996 (NSMIA) spells out the respective oversight authority of states and the SEC over investment advisers, and prohibits states from imposing substantive regulation on SEC-registered advisers. We are pleased that, following our response to proposed fiduciary rules in Massachusetts and Oklahoma, both states decided to remove references to federal covered advisers and their representatives from the scope of their new regulations.
The IAA strongly supports efforts to bolster Americans’ retirement savings. In this regard, we strongly favor restoring and expanding the deductibility of advisory fees as an itemized deduction to incentivize investors to seek advice about saving for retirement. We are also seeking reconsideration of the broad exclusion for service businesses from the 20 percent pass-through deduction created by the 2017 Tax Cuts and Jobs Act as it unfairly disadvantages investment advisory firms. The IAA is also strongly opposed to a financial transaction tax because of the unfair financial burden it would impose on investors and the securities markets.
The IAA strongly supports a uniform, national approach to data privacy law in order to create consistency and reduce complexity. In addition, we support laws that facilitate cybersecurity information sharing, both among companies and between companies and law enforcement agencies. The IAA also supports creation of a single, national data breach notification regime that would make it easier for affected companies to comply with the law while ensuring that clients and customers are protected.
The IAA strongly supports the “Investment Adviser Regulatory Flexibility Improvement Act,” bi-partisan legislation passed by the House in 2018 as part of JOBS Act 3.0, which has been introduced in the current Congress as H.R. 2436. This bill is designed to ease the regulatory burden on smaller advisory firms by requiring the SEC to analyze the impact of regulations and consider alternative approaches that minimize the burden on small businesses in accordance with the Regulatory Flexibility Act (RegFlex). Because the SEC currently defines small business to include only investment advisers with less than $25 million in AUM and the basic threshold for SEC registration is $100 million, the SEC has been able to avoid application of RegFlex to “small” advisory firms. In addition, the SEC’s definition does not take into account that more than 7,000 of the approximately 13,000 SEC-registered advisory firms employ 10 or fewer non-clerical employees. H.R. 2436 would require the SEC to develop a definition of small business that takes into account factors that include the number of an investment advisory firm’s employees.
Advisers that are responsible for voting proxies in volume typically engage third-party proxy advisory firms to help them with voting mechanics, research, and/or analytics. These services are particularly important to assist advisers in the administrative aspects of their substantial proxy voting responsibilities. While the research provided by proxy advisory firms is a valuable part of the analysis advisers undertake, advisers retain ultimate fiduciary responsibility to vote proxies in their clients’ best interest.
The IAA is concerned that the SEC’s 2019 Proxy Rule proposal, together with its 2019 guidance on investment adviser proxy voting, will have negative effects on advisers’ ability to vote proxies in their clients’ best interest and will increase burdens and costs for advisers that vote proxies, particularly those that use proxy advisory firms. We are also concerned that the proposal would put pressure on a proxy voting system already in need of a serious overhaul, undermine the independence of proxy advice, and increase barriers to entry for proxy advisory firms. We continue to urge the SEC to focus instead on proxy infrastructure, where there is evidence of significant problems.
Effective oversight of the advisory profession is critical to investor protection. The IAA believes that the SEC, an experienced and accountable governmental regulator, is in the best position to provide that oversight, and should retain its primacy in investment adviser regulation. To that end, the IAA supports efforts to ensure that the agency is able to dedicate sufficient resources for effective oversight of advisory firms and that it continues to use those resources efficiently.
The IAA advocates before the CFTC and supports CFTC and SEC coordination to streamline costly, burdensome, and duplicative regulation of commodity pool operators and commodity trading advisors that are SEC-registered advisers through exemptions, uniform rules, and substituted compliance.
The IAA supports policy approaches that promote a level playing field among investment strategies. Both active and passive strategies have valuable and important roles to play in investment management in the best interest of clients and the markets. Laws and regulations should not explicitly or implicitly favor one investment strategy over the other and should not limit investor choice or the tools available to investment advisers for risk management. For example, retirement legislation should not include provisions that favor passive management, and should not make it exceedingly difficult for retirement plans to consider ESG factors in investment decisions. To this end, the IAA is working with members to respond to the DOL’s proposal to limit a plan’s ability to invest in ESG vehicles.
Karen Barr, President & CEO firstname.lastname@example.org
Neil Simon, Vice President for Government Relations email@example.com
Gail Bernstein, General Counselgail.firstname.lastname@example.org
IAA Today (online newsletter)
Active Managers Council
Coronavirus Response Resources
IAA Letter to DOL Regarding Fiduciary Proposal
IAA Letter to CFTC Regarding Initial Margin for Uncleared Swaps
IAA Letter to DOL Regarding ESG Proposal
IAA Letter to SEC Regarding Good Faith Determinations of Fair Value
IAA Letter to SEC Regarding Solicitation
IAA Letter to DOL Requesting Extension of Comment Letter Period on ESG Proposal
IAA/CMS 2020 Trading Summit Session Recordings
Webinar Recording: Uncharted Waters: Navigating Advisory Office Re-Entry
Webinar Recording: Preparing for M&A Post Pandemic: What's Different, What's Not
2019 Evolution Revolution Report
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