Brooke’s Note: Nobody likes lawyers until they need one. The same can be said for lobbyists who also tend to talk fast, eat in better restaurants and — according to Ross Perot — wear alligator shoes. RIAs could use a few more right now in Washington. As the only recognized lobbyist for RIAs, Neil Simon is almost singlehandedly taking on lobbyists representing scores of brokerage firms and insurance companies. Here are some of his words on the matter from a luncheon speech on Friday.

The most powerful lobbyist in Washington working for the interests of RIAs believes that the insurance industry now has the upper hand.

But Neil Simon, government relations vice president for the Investment Adviser Association, told about 200 attendees of the IAA’s annual compliance conference Friday that time may still be on the side of advisors who believe in a stringent and universal fiduciary standard.

“There’s still months and months of opportunity for us to fix this thing.” he said.

The fixing will demand the untangling of the twisted facts for lawmakers, according to IAA Executive Director David Tittsworth.

Flipped the facts

FINRA has “flipped the facts on their head,” in claiming that Bernard Madoff’s massive Ponzi scheme would not have happened had FINRA been in charge of regulating his firm. Bernard L. Madoff Investment Securities LLC only registered as an investment advisory firm at the end of 2006, Tittsworth noted. FINRA had ample jurisdiction to look at the Madoff brokerage firm before and after 2006, he said.

Neither Simon nor Tiitsworth offered illusory hope that the fight would be easy. The regulatory regime that has allowed investment advisors to evolve as a separate profession is under attack from all sides in Washington, D.C. this year.

In the wake of the financial crisis, the Investment Adviser Association and other RIA advocates have been struggling to show legislators that the existing fiduciary standard should be extended to broker-dealers. It now looks as likely – or more likely — that the SEC will develop regulations that push financial advisors toward the broker-dealer way of doing business.

End of era

Simon warned the group that “what we’re facing… is the possibility of the end of the regulatorily-distinct investment advisory profession.”

However, Simon called on the industry not to give up the fight for legislation that would bring brokers who give advice under the fiduciary standard.

Lobbying by the insurance industry “has been more effective to date, or at least at this moment I should say, than the efforts of [the Investment Adviser Association] and its allies in explaining why the fiduciary duty should be extended to broker-dealers who offer advice,” Simon acknowledged at the Investment Adviser Compliance Forum in Arlington, Va.

But, Simon said, “There’s still months and months of opportunity for us to fix this thing.”

The Senate Banking Committee could introduce compromise financial service reform legislation next week which is likely to replace a strong provision that would have required fiduciary standards for all financial professionals giving advice with a provision sponsored by Sens.

Tim Johnson, D-S.D., and Mike Crapo, R-S.D., that the SEC study and then issue new regulations to harmonize broker and adviser regulations.

Cynical campaign

Simon blasted the insurance industry’s lobbying effort as a “depressingly and disturbingly effective and cynical campaign, a misrepresentation of information [from] the insurance industry, and it has been effective.”

Not surprisingly, the insurance industry characterizes things differently. “Unfortunately, the idea of a study and directed rulemaking has resulted in negative attacks from proponents of Section 913,” said Tom Currey, president of the National Association of Insurance and Financial Advisors, in an e-mail.

He referred to the section of legislation put forward last November by Senate Banking Committee Chairman Christopher Dodd, D-Conn., which would have deleted the so-called “broker-dealer exclusion” of the 1940 Investment Adviser Act, which exempts most brokers from having to register as investment advisers when they provide limited investment advice to customers.

While critics of the study proposal say broker-adviser regulation has already been studied conclusively in a 2008 study conducted for the Securities and Exchange Commission by the RAND Corp., Mr. Currey said that study was not adequate for addressing the issue of broker-adviser reform because it did not evaluate the regulatory environment governing the two industries, and it did not result in policy recommendations.

“Why would opponents be opposed to gathering the facts and directing the SEC to write new regulations based on those findings?” Mr. Currey said in the e-mail. “Maybe they are concerned that the findings of the study will not support their claims that the fiduciary duty of the Investment Advisers Act is the best way to assure consumer protection.”

Don’t get it

Advisors believe fiduciary standards provide stronger protections to investors, and Simon tried to rally the conference participants “to do a better job educating the Congress about fiduciary standard. Frankly, they don’t get it. They don’t understand what investment advisers do, and they don’t understand how profound the differences are between the brokerage world, the sell-side, and the world in which you live.”

IAA is sending out member alerts encouraging members to contact members of Congress. “It’s not over. We are fighting the good fight and we need your help,” Simon.

Meanwhile, bubbling under the surface at the conference was the possibility that FINRA could end up as the regulator of more RIAs. The self-regulatory organization that oversees broker-dealers has argued that it should oversee dually registered advisors because it would be more efficient to do so. FINRA has argued that it would be easier to examine an entire broker-dealer/investment advisory firm, rather than just looking at the broker-dealer part.

Echoes language

The amendment sponsored by Johnson requiring the SEC study, which echoes language used by broker and insurance groups in arguments made about how imposing fiduciary standards would limit consumer choices, appears to be geared toward “advancing the agenda of imposing FINRA as the [self-regulatory organization] on investment advisers,” Simon commented. Johnson stands to take over the Banking Committee next year when Dodd retires, if Democrats retain control of the Senate.