Now that members of Congress have returned to Washington, they have an opportunity to advance several bipartisan bills that would make a meaningful difference for financial advisors and the clients they serve across the country.
The proposals address a range of issues, from outdated compensation rules and financial exploitation to the treatment of inactive accounts and reinvested capital gains. In each case, lawmakers have an opportunity to solve a clearly defined problem through practical, commonsense policy.
It is crucial that Congress pass these bipartisan bills to help Americans save more, bolster financial security and promote access to professional financial advice.
Give Independent Advisors Clarity On Compensation
The Financial Services Institute (FSI) continues to support bipartisan legislation to modernize the rules governing how independent financial advisors and ensemble practices receive commission payments.
Existing rules generally require securities commissions to be paid directly to registered individuals rather than to an advisor’s business entity. As many of our members know, those rules do not reflect how independent practices increasingly operate.
Requiring commissions to be paid only to individuals can complicate the payment of shared business expenses.
Independent advisors often work as part of ensemble practices, collaborating to hire staff, recruit advisors, manage expenses, build equity and plan for continuity. Requiring commissions to be paid only to individuals can complicate the payment of shared business expenses and make it more difficult for these practices to grow.
The Clarity for Compensation Act would establish a permanent legal framework allowing commission payments to be made through advisors’ business entities. That would give advisors, ensemble practices and their affiliated firms greater certainty about how these payments may be handled.
The House Financial Services Committee approved the bill unanimously, underscoring the broad support this straightforward change enjoys. The full House may consider it in September under an expedited process generally reserved for noncontroversial legislation.
Lawmakers should take advantage of that opportunity and move the bill forward.
Strengthen Protections Against Financial Exploitation
Advisors and financial services firms often stand on the front lines of efforts to protect seniors and other vulnerable investors from financial abuse. When they spot warning signs, they need the ability to act quickly and responsibly.
The Financial Exploitation Prevention Act would provide them with additional tools to protect these investors. The House recognized the importance of the issue by passing the bill 414-2.
Attention now turns to the Senate. We are working with lawmakers to build bipartisan support and secure unanimous consent, which would allow the legislation to advance without a standard floor vote or unrelated amendments.
With overwhelming support in the House and a clear need for stronger investor protections, the Senate should finish the job.
Create Fairer Tax Treatment For Mutual Fund Investors
Americans who invest in mutual funds may owe taxes on automatically reinvested capital gains even if they have not sold their shares or withdrawn money from their accounts.
The GROWTH Act would allow investors to defer those taxes until they sell their shares. They would still pay what they owe, but the tax would be due when they actually realize the gain.
Long-term investors should not receive a tax bill simply because a fund distributed a gain that they automatically reinvested.
This is a straightforward change that addresses a basic question of fairness. Long-term investors should not receive a tax bill simply because a fund distributed a gain that they automatically reinvested.
We will continue urging Congress to pass the GROWTH Act and create fairer tax treatment for Americans working to build long-term financial security.
Recognize That Inactivity Does Not Mean Abandonment
Long-term investing often requires patience. An investor may leave an account untouched for years because that is precisely what they intend to do.
Yet some state escheatment laws allow authorities to take control of investment accounts deemed inactive. An account can be classified as abandoned simply because the investor has not logged in, responded to a mailing or contacted the firm.
That approach confuses responsible long-term investing with abandonment.
The SAFER Act would address this problem and provide greater protection for investors whose accounts remain open even if they have not recently contacted their financial services firm. The bill has bipartisan support, and we are working with lawmakers to move it to committee review.
Congress should recognize that a lack of activity does not necessarily indicate a lack of ownership.
Congress should recognize that a lack of activity does not necessarily indicate a lack of ownership.
Stop Taxing Fraud Victims On Stolen Money
People who lose money to fraud have already suffered a serious financial blow. They should not then receive a tax bill for money that someone stole from them.
Congress is considering two proposals intended to prevent that outcome. One of them, the Tax Relief for Fraud Victims Act, has advanced in the House Ways and Means Committee.
Any final legislation should provide retroactive relief to people victimized in prior years. Tax relief should not depend on when someone happened to fall prey to a criminal.
The support these bills have already received shows that lawmakers in both parties recognize the need for action. One proposal has received full or nearly unanimous support, while the other continues to attract significant bipartisan backing. Congress should build on that momentum and pass both measures before the session ends. FSI and our members will continue working with lawmakers to turn commonsense solutions into law.
Dale Brown is the President and CEO of the Financial Services Institute.
