The House of Representatives overwhelmingly approved a bill last Wednesday that would limit the scope of a regulation requiring municipal advisers to register with the Securities and Exchange Commission.
The muni bill was put on what is called the “suspension calendar.” In this case, “suspension” is a good thing, meaning that the legislation is essentially on a fast track.
After a short debate, the House passed the measure by a voice vote.
What is remarkable is that this bill is designed to reshape a regulation emanating from the Dodd-Frank financial reform law. Dodd-Frank sought to make the activities of muni advisers more transparent by putting them under the oversight of the SEC for the first time.
SRO MODEL?
By working out their differences over how to guide the SEC in writing the muni adviser rule, lawmakers demonstrated how legislation that would establish a self-regulatory organization for advisers might finally move forward — and how far it has to go to reach that point.
The House vote on the muni bill gives a glimmer of hope to a potential SEC rule that would require brokers to meet the same fiduciary duty standard that governs financial advisers when providing retail investment advice.
On the muni bill, lawmakers were concerned that the SEC's proposed rule went too far and swept too many professionals into the “adviser” category.
Rep. Robert Dold, R-Ill., a member of the House Financial Services Committee, responded by writing the bill that the House approved. His partner in the process was Rep. Gwen Moore, D-Wis., a fellow committee member.
Rather than enlisting a single Democrat and declaring that the bill was bipartisan, Mr. Dold and Ms. Moore worked to get more Democrats to sign on to the bill. One of the key changes that they made was to reinsert the requirement that muni advisers had to adhere to the federal fiduciary standard.
"GOOD FAITH'
That change helped ensure that all committee Democrats, including Massachusetts Rep. Barney Frank, the ranking minority member, backed the bill. It was approved by a voice vote.
“Everyone stayed at the table until the end and negotiated in good faith,” Ms. Moore said of her Democratic and Republican colleagues.
Committee member Rep. Maxine Waters, D-Calif., hopes that the muni bill will set a precedent.
“We can work in a cooperative way to address concerns when refining the Dodd-Frank Act, and this is an example of that,” she said.
The SRO bill is the counterpoint to the muni adviser bill. It likely won't even get a committee vote, let alone House floor action.
Lobbyists indicate that up to 12 Republican members of the House Financial Services Committee have qualms about the standards-of-care measure, which was introduced by Chairman Spencer Bachus, R-Ala. Only one Democrat so far — Mr. Bachus' co-author, Rep. Carolyn McCarthy of New York — is on the bill.
Mr. Bachus said that he wants to achieve “consensus” before moving forward.
He isn't even within shouting distance of the consensus that was reached on the muni adviser bill.
Stopping the SRO bill gives some comfort to investment advisers, who have strongly opposed it. The muni bill, on the other hand, may brighten their outlook on the stalled universal-fiduciary-duty rule.
“Fiduciary is still an important foundation for a number of members of Congress,” said Duane Thompson, a senior policy analyst for fi360 Inc.
The muni bill, however, didn't satisfy all advocates.
“By exempting broker-dealers who act as underwriters and offer advice in connection with and related to their underwriting activities, the legislation re-creates with regard to municipal advisers exactly the problem we are trying to solve with regard to broker-dealers in their dealings with retail clients,” Barbara Roper, director of investor protection at the Consumer Federation of America, wrote in a comment responding to a recent story on Investment News.com.
mschoeff@investmentnews.com Twitter: @markschoeff
