INsider: Advisers ignore Washington at their peril

A little more than a month into an election year — and 13 months into the 2012 election cycle — the institution bearing the brunt of America's disdain for partisan politics is Congress. The congressional approval rating has slumped to 13%, according to an amalgamation of polls by the website Real Clear Politics. That makes President Barack Obama's 46% approval seem like a landslide of approval. Given the negativity toward Washington, it's easy to understand why one investment adviser recently told my InvestmentNews colleagues and me that he generally ignores what happens in the capital. “I try not to pay attention [to legislation] until it becomes law,” said the adviser, who was speaking on background. Such an attitude is understandable. But ignoring Washington can put advisers at peril. On Jan. 31, I observed the exact opposite approach to Congress. The National Association of Insurance and Financial Advisors kicked off its Capitol Hill Day with a session at a Washington hotel. The event, which featured speeches by Sen. Jon Tester, D-Mont., and Rep. Charles Boustany, R-La., essentially was a seminar on how to lobby Congress. About 150 NAIFA members received instructions on how to conduct meetings with lawmakers and how to pitch NAIFA's agenda. The organization sent its members to the Hill to advocate in favor of tax breaks for insurance products and against a regulation that would impose a universal fiduciary duty for retail investment advice. NAIFA is skeptical of a fiduciary duty because it believes such a stricture would dramatically increase regulatory and liability costs for its nearly 50,000 members, many of whom are licensed as brokers. Terry Headley, managing partner at Headley/Scott & Associates in Omaha, Neb., and a former NAIFA president, gave the audience succinct marching orders. They should emphasize that 75 million Americans rely on insurance products for financial security, 20% of U.S. savings are attributable to insurance investments, and the insurance industry pays out $1.6 billion in benefits every day. “We're not Wall Street,” Mr. Headley said. “We're Main Street.” Fiduciary duty advocates see NAIFA as the primary foe of a universal standard of care. They say that NAIFA is trying to protect members who sell what they call the most complex product of all — variable annuities. Fiduciary proponents argue that investors deserve to have an adviser who acts in their best interests as they build more of their nest egg on their own. NAIFA, however, believes it has its own strong pitch — keeping middle-income investors from being priced out of the advice market, which could happen if advisers abandon the commission model and move to fee-based businesses. Which side prevails may depend on which is better at getting its message out to Congress and regulators. On paper, NAIFA and other broker groups have an advantage. So far in the 2012 election cycle, NAIFA has raised $1.2 million for its political action committee, according to the Center for Responsive Politics. It has made $847,284 in campaign donations to 140 members of the House and 31 senators. In 2011, it spent $1.1 million on lobbying. The Securities Industry and Financial Markets Association has donated $246,084 to 61 House members and nine senators for the 2012 cycle. In 2011, it spent $5.2 million on lobbying. The Financial Industry Regulatory Authority Inc. doesn't have a PAC, but it plowed more than $1 million into lobbying in 2011. The Financial Services Institute Inc., which adds new independent broker-dealers to its roster regularly, has $160,000 in its PAC and spent $360,000 on lobbying in 2011. The numbers for investment-adviser groups are more modest. The Investment Adviser Association has raised $23,681 for its PAC so far for this cycle. It spent $215,000 to lobby in 2011. The Financial Planning Association has raised $33,082 for its PAC. Its lobbying total for 2011 was $432,000. Congress is not poised to act on tax reform, nor can it directly influence a fiduciary duty regulation, which is the purview of the Securities and Exchange Commission. But now is not the time to ignore Capitol Hill. Establishing a presence — and a message — eventually will pay off. “This is an opportunity to build the groundwork,” Diane Boyle, NAIFA vice president for federal government relations, said before the group's members departed for Capitol Hill. “They're going to be listening.”