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house Bill H.R. 5424

Do Investment Advisers Need a Break From Certain Record-keeping Requirements?

Argument in favor

A lot the requirements that are being changed by this bill don’t make sense given how the advisers’ firms are structured, and there’s bipartisan support for these regulatory changes.

Berto's Opinion
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09/09/2016
Overregulation creates unnecessary costs and lost efficiency. Yes, we want to make sure consumers of these investment services are shielded from negligence; but there's a better way to do that. These regulations create both costs to the firm for compliance, and cost to the government (taxpayers) for auditing and enforcement. Wherever possible, we should eliminate those costs, and instead opt for stricter punishments, if and when fund managers act negligently and actively de-fraud investors. In some countries, fraudulent practices are punished with mandatory jail time, and require fraudsters to pay back DOUBLE the losses they caused. That's a huge disincentive for unethical behavior.
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John's Opinion
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09/08/2016
I'm always in favor of reducing the government footprint on the economy.
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William's Opinion
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09/09/2016
Regulation is needed so we never have another recession as bad as the Great Recession
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Argument opposed

Congress shouldn’t allow investment advisers to get relief from record-keeping and reporting requirements, as they were put in place to ensure investors’ assets are protected.

Richard's Opinion
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09/09/2016
If anything they need more accountability.
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Lycos's Opinion
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09/09/2016
Theses requirements were put in place for a reason and to provide a "break" would imply that they are not regulations rather a form of punishment imposed on a child. Once a break is provided there would only be desires for a longer "break" or doing away from the regulations all together.
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nickarnold's Opinion
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09/10/2016
Insane that this would pass. These are the types of deregulations that provided a lack of ability to track down those who were fraudulent in the 2008 era.
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What is House Bill H.R. 5424?

This bill would change certain record-keeping and reporting burdens that currently apply to investment advisers at private equity firms and private investment funds. It would also modify some rules and regulations used by the Securities and Exchange Commission (SEC) to govern how

For advisers whose businesses are structured in a format other than a partnership, requirements related to the assignment of advisory contracts when there’s a change in the firm’s minority ownership would be eased. This would be done to eliminate a bias against corporate structures other than partnerships, as partnerships are exempted from these requirements under current law.

A rule that prevents advisers from using testimonials or references to specific recommendations they’d made in the past would be lifted, but only for materials distributed to high net worth individuals that are considered accredited investors. In lieu of the ban, these materials would be subject to existing anti-fraud standards.

An exception to the SEC’s Custody Rule would be broadened for privately offered securities by eliminating the requirement that privately offered securities in an unaudited pool have to be held by someone who is qualified. Under current law, only securities from an audited pool are exempt.

The Custody Rule’s required annual surprise exams would be lifted for private funds that:

  • Are owned exclusively by the adviser or the people it serves, its affiliates or their principals, or service providers to the fund, its clients, or portfolio companies;

  • Are set up to only hold securities from one company and the fund has a controlling interest in that company.

Impact

Investment advisers at private equity firms and private investment funds; their investors; and the SEC.

Cost of House Bill H.R. 5424

$0.00
The CBO estimates that implementing this bill would cost $2 million over the 2017-2021 period, although the SEC would collect fees to offset this amount, meaning that its net effect on spending would be minimal.

More Information

In-Depth: Sponsoring Rep. Robert Hurt (R-VA) introduced this bill in an effort to “minimize regulatory burdens that are stifling economic investment” by focusing on outdated requirements that the SEC imposes on investment advisers:

“The bipartisan effort to rid the [Investment Advisers Act] of outdated, cumbersome regulatory schemes would not curtail the Securities and Exchange Commission’s ability to carry out its role, but rather, this measure is a much-needed legislative update to an antiquated law that does not reflect the current model of our nation’s small businesses and investors.”

This legislation was passed by the House Financial Services Committee on a 47-12 vote, and has the bipartisan support of five cosponsors — including three Democrats and two Republicans.


Media:

Summary by Eric Revell
(Photo Credit: Raiffeisenverband Salzburg reg. Gen. m. b. H., Schwarzstr. 13-15, 5024)

AKA

Investment Advisers Modernization Act of 2016

Official Title

To amend the Investment Advisers Act of 1940 and to direct the Securities and Exchange Commission to amend its rules to modernize certain requirements relating to investment advisers, and for other purposes.

bill Progress


  • Not enacted
    The President has not signed this bill
  • The senate has not voted
      senate Committees
      Committee on Banking, Housing, and Urban Affairs
  • The house Passed September 9th, 2016
    Roll Call Vote 261 Yea / 145 Nay
      house Committees
      Committee on Financial Services
      Investor Protection, Entrepreneurship, and Capital Markets
    IntroducedJune 9th, 2016

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    Overregulation creates unnecessary costs and lost efficiency. Yes, we want to make sure consumers of these investment services are shielded from negligence; but there's a better way to do that. These regulations create both costs to the firm for compliance, and cost to the government (taxpayers) for auditing and enforcement. Wherever possible, we should eliminate those costs, and instead opt for stricter punishments, if and when fund managers act negligently and actively de-fraud investors. In some countries, fraudulent practices are punished with mandatory jail time, and require fraudsters to pay back DOUBLE the losses they caused. That's a huge disincentive for unethical behavior.
    Like (15)
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    If anything they need more accountability.
    Like (40)
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    Theses requirements were put in place for a reason and to provide a "break" would imply that they are not regulations rather a form of punishment imposed on a child. Once a break is provided there would only be desires for a longer "break" or doing away from the regulations all together.
    Like (18)
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    Insane that this would pass. These are the types of deregulations that provided a lack of ability to track down those who were fraudulent in the 2008 era.
    Like (16)
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    No! They ripped us off big time and some still continue ripping off investors. Records are and should be mandatory.
    Like (9)
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    Seriously?! 🙄😳
    Like (8)
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    Nope. This is required to know if they have your best interest in mind. Also, don't forget to ask your advisor if they are a fiduciary. If they say no, then take your money elsewhere. Only fiduciaries are required to invest in accordance with their clients best interest.
    Like (7)
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    Documentation allows one to record responsibility. Why wouldn't you want to take responsibility for your decisions unless they were of questionable morality or legality?
    Like (7)
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    More help for the wealthy. Never anything done for working people. You're the worst
    Like (5)
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    I'm always in favor of reducing the government footprint on the economy.
    Like (4)
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    Some of you people must be suffering from short term memory loss-these are the people who lack accountability and crash the economy when regulations are taken away. Wall St. needs to be on a firm leash at all times.
    Like (4)
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    Regulation is needed so we never have another recession as bad as the Great Recession
    Like (3)
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    There is not enough regulation of financial sector.
    Like (3)
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    While I'm all for decreasing the size of the federal bureaucracy, the SEC rules on individual investment activities is so confusing that I am wary of changing any reporting requirements that give the illusion of easing work on the investment industry. The KISS principle, recommended by other posts should be at the forefront of all of this.
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    Trying to help criminals again huh?
    Like (3)
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    Banks and investment firms need all the regulations we can muster. Just look at Wells Fargo! Full me twice, shame on me.
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    There is no reason to change existing rules. Given the number of advisors, it is hard to believe the industry is being "stifled"
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    The is is currently only minimal oversight of the entire financial industry, by poorly funded, toothless agencies that finance industry insiders actually scoff at. Look at Madoff - even with dozens of reports to regulatory agencies over a period of years, there was never even a single audit meaningful enough to uncover almost unimaginable fraud. The financial advisors who routinely steered their clients toward Madoff-managed funds, always took their cut, but didn't have any liability or pay any penalty once the funds were found to be empty. I'm not inclined to reduce their record keeping requirements because that just makes fraud easier at their level.
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    Based solely on the information provided, I perceive the best course of action would be to vote "yea." If these requirements truly are extraneous, then requiring a firm to keep such a record on an item in which they have zero affiliation with would be absolutely moronic. The result of such an action would mean a loss of productivity for the affected worker, directly harming the firm, and indirectly causing an extra burden to the market.
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    Again, deregulation of Wall Street, especially this kind of legislation which ENCOURAGES concealing information or not even reporting it, is bound to harm the citizenry. Shame on the corrupt Republican Congress for even proposing such hogwash.
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