With Democrats leading Republicans in the polls with less than two weeks from mid-terms, the possibility that the House of Representatives will flip looms large. And if that happens, Rep. Maxine Waters (D-Calif.) would become chair of the House Financial Services Committee.

A new Ipsos poll found that 49 percent of voters said they would vote for the Democratic candidate in their district, compared to 42 percent who said they will back their Republican candidate. A Real Clear Politics poll put Democrats ahead by 7.2 points.

So just what would a Waters chairmanship mean for the securities industry and especially for the Securities and Exchange Commission’s controversial best-interest proposal, which is ostensibly designed to create “separate but equal” regulations for brokers and advisors?

The fiery California congresswoman was among the Trump opponents targeted by mailed packages containing pipe bombs this week.

"We have to keep to doing what we’re doing in order to make this country right. That’s what I intend to do, and as the young people say, 'I ain’t scared,’” Waters told media company Blavity after two bombs addressed to her were discovered at mail centers in Los Angeles and the Washington, D.C., area. Eight other Democratic politicians and left-leaning figures also were the targets of pipe bombs.

Waters has been a harsh critic of teh SEC's best-interest proposal. She gave SEC Chairman Jay Clayton a grilling during an oversight hearing in June, making it clear she believes the proposal falls short because it does not impose a fiduciary standard on brokers who offer advice. 

"Don't you agree that it would be far simpler and clearer for investors to subject any broker that holds himself out as providing investment advice or who engages in advisory services to the [Investment] Advisers Act fiduciary duty and require them to put their clients' interests first?” Waters asked.

The 14-term congresswoman also took issue with the rule's limited prohibition on brokers’ use of the term "advisor" or "adviser," arguing that the proposal still leaves open a universe of other other titles that give investors the mistaken impression that a broker is acting under the highest standards of conduct.

"The proposal would only prohibit brokers from calling themselves 'advisors,' and fails to address the numerous other titles that may be used, like 'financial planner,' or 'wealth manager,'" Waters told Clayton.
Clayton pushed back against Waters in June and is unlikely to back down much in the future, even if the House flips.

Clayton argued that the business models and client relationships of investment advisors and broker-dealers are fundamentally different, making distinct but comparable regulatory frameworks appropriate. In a fee-based advisory model, clients expect a holistic service, where the advisor develops strategies to meet goals like retirement planning or paying for college, Clayton explained. In a brokerage relationship, by contrast, the client comes to the broker for specific investment recommendations on an "episodic" basis, he said.

Though the new regulation would not extend the advisor's explicit fiduciary duty to the brokerage space, it would effectively “harmonize” their regulatory expectations, he asserted.

Despite Waters' displeasure with the best-interest proposal, some note that her impact will be limited due to the fact that Donald Trump will remain president until at least 2020.

“Does the chair of the House Financial Services Committee have some authority? I’d say yes from the bully pulpit point of view, certainly,” said David Tittsworth, counsel in Ropes & Gray’s Washington, D.C., investment management practice. “But absent a full legislative change, and we know who the president is, a statutory change that tells the SEC to do something different is very unlikely.”

“The reality is, no matter the outcome of the mid-term races, President Trump would still have veto power, which would require two-thirds of the House and the Senate to overturn, which is extremely unlikely,” he added.

Still, that doesn’t mean there won’t be a significant change in tone if Waters takes the reins of the Financial Services Committee from current Chairman Jeb Hensarling (R-Texas). Her focus has been much more investor centric, which contrasts sharply with Hensarling’s free market ideology. While Hensarling has attempted to dismantle regulation, including some of the Dodd-Frank Act, Waters is an advocate of Dodd-Frank and a supporter of the U.S. Department of Labor’s fiduciary rule, which would have increased protections for investors who roll over IRAs. The rule was gutted in court earlier this year.

“She’s as far left as Jeb is right,” said one veteran lobbyist who requested anonymity. “A lot of business folks don’t like her because she’s pretty left wing, advocates for the poorer people in her district and talks about confronting Republicans in public places. But she has a pretty good financial services staff. They’ll be the folks doing the hard work.”

There is also the matter of an ethics scandal concerning Waters' husband’s investment in a California bank, which still dogs the representative amongst conservatives and on social media.

Waters was cleared of three charges that asserted that she and her grandson improperly used her position to “preserve her husband’s investment in OneUnited Bank,” despite warnings from then House Financial Services Committee Chairman Barney Frank (D-Mass.). Waters' husband’s investment in the nation’s largest black-owned bank had tumbled from $350,000 to $175,000 after the mortgage banking crash. The Waters investment, which was approximately 15 percent of their net worth in 2010, would have been worthless if Waters hadn’t succeeded, after seeking legislative input from L.A.-based OneUnited, in passing the Troubled Asset Relief Program (TARP) bill that allowed the Treasury Department to provide OneUnited with $50 million in assistance to cover expected losses from the collapse of mortgage giants Fannie Mae and Freddie Mac. Waters also arranged for meetings between OneUnited executives and key Treasury officials.

Waters did not immediately respond to Financial Advisor Magazine’s request for comment on what her agenda will be if she takes over the committee.