Occupy Wall Street draws mixed reactions from advisers

A majority of financial advisers don't support the Occupy Wall Street movement, but they are more evenly split when it comes to the broad themes espoused by the protesters: imposing higher taxes on the wealthy and tougher regulations on big banks. According to the results of an InvestmentNews online survey of 361 advisers, 59.1% of the respondents said that they disagree with the views expressed by the Occupy Wall Street protesters. Meanwhile, 37.8% of advisers said that they agree with the views of the protesters, and 3.1% said that they were unfamiliar with Occupy Wall Street. Surprisingly, the survey, conducted last week, found that 44.9% of the advisers said that they support tax reform — even if that ultimately leads to higher taxes on the wealthy — while another 44.9% are against it. Additionally, the survey showed that 42% of advisers said that they are in favor of tougher government regulation of banks and Wall Street firms and 45.1% said that they are against it. “That split is really surprising,” said Louis Harvey, chief executive of financial services market research firm Dalbar Inc. “Increased regulation on banks would drive the cost of banking at the retail level. Raising taxes on the most mobile segment of society is a little crazy, too,” Mr. Harvey said. “A lot of advisers I speak with worry that clients will move assets offshore.” One possible explanation for the number of advisers in favor of raising taxes could simply be that they are realistic about the nation's fiscal state. “Many advisers are acutely aware of the need to solve the deficit problem, and the stalemate on the deficit is weighing down the market,” said Andrew Friedman, principal at The Washington Update, an online newsletter. “Most who think about this carefully see that the only way to solve this is to cut entitlements and raise taxes a bit.”

REINING IN BANKS

The fact that a significant plurality supports tougher regulation on banks is puzzling at first, but explainable. “Confidence in the banking system will help the markets,” Mr. Friedman noted. Among the respondents, 38.3% characterized themselves as Republicans, 37.1% as independents and 10.5% as Democrats. The Occupy Wall Street protest, which just entered its fifth week in Lower Manhattan, has spawned similar occupations in more than 100 U.S. cities. On Oct. 15, the group's Global Day of Action, 1,500 protests were held in 82 countries. Though Occupy Wall Street hasn't furnished an official list of demands, sympathizers have called for bringing back the Glass-Steagall Act of 1933, plus an enactment of the so-called Buffett Rule, a new tax to be assessed on individuals making more than $1 million a year. More broadly, demonstrators are protesting a variety of issues, including the dismal job market, student loan debt and Wall Street's role in selling doomed mortgage-backed securities. Americans, by and large, are on the protesters' side. Fully 59% of some 1,007 adults participating in a United Technologies/National Journal Congressional Connection poll said that they agree with the protesters, while 31% said they disagree. Advisers, on the other hand, are less sympathetic. “I'm not a fan,” Marc S. Freedman, president of Freedman Financial Inc., said of the protests, in-cluding Occupy Boston, which is about 20 miles away from his office. “I think the leaders on the [House] Financial Services Committee have their eye squarely on the ball and when change is necessary, they're the people I want to go to for logical, intelligent conversation.” Peter Schiff, chief executive of broker-dealer Euro Pacific Capital Inc., said the protesters' ire was aimed at the wrong people. “They should protest the government,” said. “I was against the bailout to begin with. If you don't like bailouts, get angry at the government.”

IT'S HOW THEY DO IT

Whether or not they approve of their tactics, advisers acknowledged that protesters' grievances aren't all that off the mark. “What [the protesters] are saying is, "We watched you bail out the banks, but now that people are making big bonuses again, we can't find any jobs,'” said adviser Meg Green. She wouldn't mind paying a little more in taxes either, provided the tax increase came with spending cuts and immigration reform. “If people earning over $1 million had a little excise tax, I don't think that would hurt anyone who earns that much,” Ms. Green said. “It's very unpopular, but I'm one who'd be willing to pay — if you're willing to fix the other side: how we spend the money.” Still, some advisers expressed apprehension about the prospect of raising taxes on the wealthy. Rising taxes may not bother the most moneyed individuals but could be detrimental for households closer to the cutoff point and could lead them to spend less, they said. “There's a fine line between how much taxes may rise, and where does that stop in terms of injecting spending back into the economy,” said Richard Dragotta, a branch manager with LPL Financial LLC. “If the wealthy don't spend, it won't trickle down.”

LEAVE ADVISERS ALONE

For his part, Mr. Dragotta feels advisers are sufficiently regulated, but the more esoteric corner of the investment world could use more rules. “We're highly regulated because of events that have nothing to do with us or our clients directly. There's some inequity in that, in that I'm paying the price for things that have nothing to do with me,” Mr. Dragotta said. “Hedge funds, mortgage originators and the manipulation that goes on — that should have been regulated.” In spite of the breadth of the movement, most advisers believe the demonstrations will have little impact on where political parties stand. Forty-three percent of polled advisers believe Occupy Wall Street won't affect the positions of either political party, while 34.7% think it will move Democrats further to the left. A small percentage (13.2%) think it will encourage Republicans to move to the center. “Do I think a bunch of guys hanging out in tents is going to change the political landscape or the tax code?” asked Mr. Freedman. “Absolutely not. At the end of the day, this too shall pass.” Email Darla Mercado at dmercado@investmentnews.com