Equally critical, perhaps, is the pending rule that would exempt brokers from investment advisor registration. Since the SEC said it would not bring enforcement actions against broker-dealers or registered reps who were offering fee-based services for advice they believe to be incidental, the proposal has become a de facto rule, which is the worst of all worlds for advisors, says the FPA's Thompson. "[Wirehouse] reps don't have the same level of disclosure nor do they have a fiduciary duty to clients. It's just confusing to consumers to offer so many different types of protection."

Off the record, however, proponents of the rule say SEC staffers believe it's a kind of Faustian deal-a clear-cut way to stop commission churning because it requires that reps offer fee-based accounts to qualify for the exemption. "If they believe they can eliminate the incentives for churning, then it's a good deal and more important than differentiating advisors from others," says a source.

Real Tax Relief

At the core of the Bush budget proposal are tax breaks. The bid to eliminate double taxation on dividends brought out opponents, including some leading Republicans, even before actual language was formally released. Among other things, critics contend tax-free dividends would decrease retirement savings incentives in favor of regular investing. To counter that, the White House is advancing a proposal to boost tax-free savings and retirement investments in three new accounts: the Lifetime Savings Account (LSA), the Retirement Savings Account (RSA) and the Employer Retirement Savings Account (ERSA).

The changes, if enacted, would change the face of investing and retirement savings immediately, advisors say. Under the Bush plan, the new accounts would replace IRAs, not have income caps as existing IRAs do, and ratchet up annual contribution limits so that everyone, regardless of income, can contribute $7,500 to both the LSA and RSA.

Together, LSAs and RSAs would allow each taxpayer to sock away $15,000 annually tax-free. There would be no tax deductions for LSA contributions, but investors would get tax-free earnings and could make tax-free withdrawals for any reason during the life of the account. RSAs would work the same way, except they would limit tax-free withdrawals to investors age 58 or older or in the case of disability or death. Contribution limits would be tied to future inflation.

ERSAs would replace a variety of employer-sponsored retirement accounts. The account would allow annual contributions per individual of up to $12,000 initially, and that level would increase to $15,000 in 2006. Individuals who are age 50 or older could contribute another $2,000 annually, beginning this year. The ERSAs would follow 401(k) rules, but simplify them by easing discrimination testing and other employer challenges-something the Bush White House believes would provide incentives to employers, especially smaller companies, to offer workplace plans.

"We support expanding and accelerating investment and retirement accounts and raising contribution levels," says Alfred Campos, assistant director of government affairs in the FPA's Washington office.

Still, even proponents admit that the fate of the three new savings and retirement accounts is cloudy, given the looming budget deficit and the fact that they would cost the Treasury billions over the next decade. The reaction of state governments, as they grapple with dwindling coffers, is also uncertain. Democrats, meanwhile, are using a broad brush to paint the proposals as pro-wealthy.

Other interesting news is in the making for advisors and investors regarding workplace retirement advice. As part of Congress's efforts to shore up retirement savings, Senate Minority Leader Tom Daschle (D-S.D.) introduced "The Pension Protection and Expansion Act of 2003" on the first day of the new 108th Congress. The bill would lift long-held Department of Labor restrictions on who can offer advice to retirement plan participants, as long as the advice comes from an independent source. House Education & Workforce Committee Chairman John Boehner (R-Ohio), introduced a similar bill that would open the floodgates of 401(k) advice even further by allowing just about everyone to offer employees advice regarding investment diversification, provided they disclose fees and conflicts of interest first. Both lawmakers introduced their bills last year as well.