The IAA is also lobbying Congress on some of the taxation provisions in the 2017 Tax Cuts and Jobs Act. For example, the law created new 20% deductions for the owners of pass-through businesses, but excluded most service businesses. The statute mentions investment advisors, but excludes real estate and investment brokers, creating a “fundamental unfairness,” said Simon.
He said he is also arguing that Congress should restore the deductibility of advisory fees, which the Tax Cuts and Jobs Act eliminated.
“There is also a bill called the Investment Adviser Regulatory Flexibility Improvement Act,” said Simon. “Way back during the Carter era, Congress passed something called the Regulatory Flexibility Act, which told federal agencies to pay attention to the impact of their proposals on small businesses.”
The SEC, however, only defines advisors as a small business if they have less than $25 million in AUM—which Simon said is out of sync with the $100 million AUM threshold for SEC registration. “In other words, the SEC doesn’t have to do any of the analysis required by the Regulatory Flexibility Act.”
The Investment Adviser Regulatory Flexibility Improvement Act would prevent the SEC from avoiding the rules of the already enacted Regulatory Flexibility Act by requiring them to “move up” the definition of a small business to a higher AUM or to use a different threshold altogether, by using a firm's total number of employees, for example.
Simon also asked advisors to be wary of one recent state regulation coming out of California that covers consumer privacy.
“We think it’s a mess,” he said. “It requires you to get consent from consumers before sharing their data with third-party providers. Now a whole bunch of states are going to follow suit, and all of them differently. It’s an area that cries out for a pre-emption from federal law.”