Charles Schwab lobbyists plan to hit Capital Hill tomorrow with a clear message for lawmakers: The Securities and Exchange Commission is right not to include a fiduciary standard for brokers in its recent sales conduct proposal.
"This is not a fiduciary rule. We think that’s a good thing,” Jeff Brown, senior vice president and head of Schwab’s Office of Legislative and Regulatory Affairs, told reporters during a press conference in Washington, D.C. on Tuesday. Schwab executives will join hundreds of broker-dealer and investment advisor executives at the Investment Advisors Association lobbying day on Capital Hill on Wednesday.
“We have millions of clients who don’t want to pay for ongoing advice,” Brown said. “If they want ongoing advice they can choose a registered investment advisor. That’s something the rule preserves. If a brokerage customer calls and says, ‘I’ve owned IBM for years, should I sell it?’ That would trigger Reg BI,” Brown said of the “best-interest” proposal, which the SEC introduced to reduce consumer confusion and broker conflicts of interest.
“It protects the sense that clients are able to choose the type of account services they want, but also creates a transactional duty on broker-dealers to put their [customers’] interests first,” Brown added.
The veteran lobbyist acknowledged that some critics, including the IAA, do not believe the SEC proposal goes far enough to apply a fiduciary standard to brokers or to protect investors from conflicts of interest.
But “in many ways it enhances the obligations that a broker-dealer has to engage in to give advice,” Brown said. “They have to put clients’ interests first when giving advice of securities. It doesn’t extend beyond that. It’s a transactional duty. It’s a good thing,” he said.
Unlike the DOL fiduciary rule, which was limited to IRAs, the SEC proposal “extends across all accounts. It also clarifies that brokers can’t call themselves advisors or advisers, in an attempt to reduce confusion to clients,” Brown said.
On the tax front, Schwab and other groups continue to hammer home the fact with lawmakers that advisors and their clients were unfairly disadvantaged by tax reform changes. Those changes limited the tax deduction of investment fees as an itemized deduction and do not allow advisory firms to benefit from the 20 percent deduction for pass-through businesses.
But changing that anytime soon is a long shot, Schwab lobbyists said.
“We do not have a champion [in Congress] as of yet and the odds of change this year are probably small,” Brown said. “There is a bit of a tax hangover. People are looking to other issues. So [it's] difficult, but not one that you give up on. You just have to keep working it.”