Financial Industry and Regulation

ADISA Board Appoint President, Officers: The DI Wire reports that the new ADISA board – elected by the membership in late 2023 – last week selected its 2024 officers. Jade Miller of Bourne Financial Group began her term as the 2024 ADISA president. At the meeting, John Grady with ABR Dynamic Funds was elected as the 2024 president-elect and will serve as president in 2025. This is the first time a previous president has been elected to serve again as Grady served as ADISA’s president in 2017. Grady serves as ABR Dynamic Funds’ chief operating officer and general counsel. (For all the details, please click on this link.)

Opponent Says DOL Understated Costs of its Fiduciary Proposal: Financial Advisor IQ reports that a report made for a major industry group opposed to the Department of Labor’s so-called fiduciary rule claims that the cost of the regulation is much more than what the agency estimates. The DOL put the up-front compliance cost of the regulation at $37 million — but Oxford Economics estimates that the figure will approximate $238 million, the research firm says it found in a study for the Financial Services Institute of 15 FSI member firms “representing over 26,000 financial advisors with a total revenue of $14.5 billion.” Additionally, Oxford Economics estimates the ongoing annual cost of the regulation at $2.5 billion, not the $216 million estimated by the DOL.

Editor's note: ADISA submitted a comment letter in December to the Department of Labor in regards to its fiduciary rule proposal.

DOL Proposes Regs to Expand Retirement Account Portability: ThinkAdvisor reports that DOL’s Employee Benefits Security Administration last week released proposed regulations meant to expand the use of automatic retirement account portability tools. Biden administration officials, led by Assistant Secretary for Employee Benefits Security Lisa Gomez, say the expansion of automatic portability will help ensure savers remain connected to their defined contribution retirement assets when changing jobs. Policymakers also hope the new rules will reduce the pace of small-account cash-outs. The new regulations are being promulgated under the Secure 2.0 Act. The proposed regulations will have a 60-day public comment period.

Twenty-Six State AGs File DOL ESG Rule Appeal: PLANSPONSOR reports that 26 Republican state attorneys general filed an appeal to request the U.S. 5th Circuit Court of Appeals reverse a district court ruling on the 2022 DOL rule that permits environmental, social and governance factors to be considered when selecting retirement plan investments. The appeal, filed on Jan. 18, challenges the September 2023 dismissal of their initial complaint that had challenged the legality of the ESG rule put in place by the DOL under President Biden. The appellants argued that the tiebreaker provision of the DOL’s 2022 rule violates the Employee Retirement Income Security Act and requested the 5th Circuit find the rule “arbitrary, capricious and unlawful.” The 2022 ESG rule provides fiduciaries with greater flexibility to consider collateral non-financial factors — as a tiebreaker — when selecting investment options for retirement plans.

FINRA Finalizes Remote Supervision Timeline: AdvisorHub reports that more than four years after it suspended in-person inspection requirements due to the Covid-19 pandemic, the Financial Industry Regulatory Authority’s temporary relief will expire on May 31, according to a regulatory notice issued on Tuesday. In its place, FINRA will implement two new rules to govern remote supervision that were approved by the Securities and Exchange Commission in November. One measure, which will change the definition of a residential supervisory location so that home offices must be inspected once every three years rather than annually, will take effect on June 1, according to the notice. A second rule establishes a remote inspection pilot program that allows certain firms to continue with virtual exams of broker offices. That rule will take effect July 1, and firms will have from June 1 to June 26 to enroll in the pilot, the notice stated. Firms may begin treating brokers’ offices as a residential supervisory location on June 1 and must submit a list of those locations by Oct. 15.

More Transparency Required for Blank-Check Companies by SEC: Reuters reports that blank-check companies and their acquisition targets will take on more legal liability for disclosures about projected earnings and other material information under new rules adopted by the SEC on Wednesday. The changes target deals involving "special-purpose acquisition companies,” shell companies that raise funds through a listing with the intention of acquiring a private company and taking it public. Critics say the vehicles allow targets to sidestep the stiffer regulatory scrutiny of a traditional initial public offering, putting investors at risk. A divided five-member Commission voted 3-2 to adopt the proposal, with Republican members saying it would likely further inhibit the use of a potentially valuable investing tool that has since largely fallen out of favor among equity investors.

Policy and Legislation

House Panel Reports Tax Bill with Bipartisan Support: The Hill reports that a deal to reduce taxes for businesses and increase the child tax credit made it out of the House Ways and Means Committee with broad bipartisan support late last week. The bill had 40 votes in favor and only three opposed. The cost of the proposal — $33 billion for the CTC expansion plus another $33 billion for business breaks — are offset almost exactly by a $77 billion revenue bump achieved by canceling the employee retention tax credit. The proposal includes 100% bonus depreciation as well as research and development expensing. The White House said it was pleased with the progress of the legislation — and the fact the deal was paid for — urging Congress to pass the measure. The tax deal may advance to the House Floor for consideration as early as next week. However, the deal faces an uncertain future in the GOP-controlled House, where Speaker Mike Johnson (R-LA) has yet to weigh in on the measure. Senate Majority Leader Chuck Schumer (D-NY) has endorsed the tax proposal, which would need 60 votes to pass. The IRS will start accepting individuals’ 2023 tax returns on Jan. 29, so the timing of the bill is important.

Lawmakers Spar Over SEC Climate Disclosure Rule: The Hill reports that the SEC’s new “climate disclosure” rule was the latest flashpoint in the GOP’s battle against government overreach in a House hearing last week. Republicans say the rule is not only a threat to enterprise but will be struck down in court, with the Supreme Court last week signaling it will claw back federal agency power. Democrats say the SEC is protecting investors and isn’t subject to restrictions that could soon be placed on other government agencies. The SEC seeks to require publicly traded companies to report direct and indirect emissions, as well as all emissions generated through their business supply chains and partners. Additionally, it would require companies to detail the “actual or likely material impacts” of climate change on their business strategy, and any plans to move toward cleaner energy.

House Panel Approves Bill to Create Fiscal Commission: Roll Call reports that the House Budget Committee last week advanced legislation that would create a bipartisan fiscal commission to come up with a solution to the government’s worsening budget outlook and propose it to Congress for expedited action. Many Democrats oppose the plan, but three on the Budget Committee crossed over to join Republicans in approving the bill, 22-12. They included Scott Peters (D-CA), who co-wrote the bill with sponsor Bill Huizenga (R-MI). The bill would create a 16-member fiscal commission evenly divided between House and Senate members and Republicans and Democrats, and four nonvoting members from outside Congress. The commission would be charged with writing a report and legislation to improve the long-term fiscal condition of the government, reduce deficits and debt, achieve a sustainable ratio of debt to gross domestic product by fiscal 2039, and improve the solvency of federal trust funds, including those that finance Social Security and Medicare. Senate Finance Chair Ron Wyden (D-OR) said he opposes the House bill.