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Industry Voices

The world according to Trump

David Tittsworth
David Tittsworth

The results of the 2016 elections have everyone in Washington talking. Donald Trump's unexpected victory — predicted by almost no one inside the Beltway — has turned conventional theories on their head and led to rampant speculation about what may or may not happen during the next four years.

As a simple guy who came to Washington 30 years ago to work for my congressman from Kansas, I do not have a monopoly on insights or a direct line into Trump Tower. But here are three basic observations to keep in mind as one considers what the new administration portends for the asset management industry:

Appointments matter

President-elect Trump is in the process of appointing a lot of folks to important positions who will have a direct and profound impact on shaping laws, regulations and policies. For asset management firms, his nominations to the Treasury and Labor departments, the Commodity Futures Trading Commission and, of course, the Securities and Exchange Commission, are critical in determining the trajectory of regulatory, compliance and enforcement issues. Jay Clayton, whom Mr. Trump has tapped to lead the SEC, will set the agenda for the agency, hire key staff, run day-to-day operations, represent the agency at the Financial Stability Oversight Council, and serve as key spokesman with Congress and non-U.S. policymakers. Other members of Mr. Trump's economic team, including the Federal Reserve, will play a major role in fiscal, monetary and budgetary policies that affect every segment of our economy — and investment decisions made by asset managers. Most matters in the Senate require at least 60 votes in order to proceed. Ironically, thanks to Harry Reid's parliamentary maneuvers in 2013, President Trump will only need a bare majority of Senators to approve nominees that require Senate confirmation (other than U.S. Supreme Court nominations). So Mr. Trump's nominees will have a lower hurdle to achieve Senate confirmation. One other cautionary tidbit: changing the direction of an agency like the SEC takes time and effort. It can be done, but it's more akin to turning an aircraft carrier around than driving a speed boat.

No silver bullets

As of Jan. 20, Republicans will control the White House, Senate and House. There is pent up demand for change. Yes, the new president will be able to immediately reverse previous executive orders. Yes, Congress will likely consider significant changes to the tax code and the Dodd-Frank Wall Street Reform and Consumer Protection Act. And yes, the new SEC chairman will be able to set the regulatory and enforcement agenda for the agency. But checks and balances generally will preclude wholesale, turn-on-a-dime, radical changes — at least in the near-term. For example, Rep. Jeb Hensarling, R-Texas, who will serve an additional two years as chairman of the House Financial Services Committee, has introduced legislation that would change many provisions of Dodd-Frank — from repealing the Volcker rule and the FSOC's ability to designate systemically important financial institutions, to overhauling the way the Fed operates and regulatory procedures the SEC and other agencies must follow. Mr. Hensarling recently stated he is working on Version 2.0 of his legislation. It's a pretty sure bet his bill will become the primary legislative vehicle for revising Dodd-Frank and that the House will pass a sweeping bill relatively early in 2017. But on the other side of Capitol Hill, Senate rules require a significant degree of bipartisanship — at least eight Democrats would have to join all 52 Republican senators before legislative votes can proceed. Unless the Senate changes its rules (an improbable outcome), enacting sweeping financial services legislation will be difficult. Similarly, final regulations cannot just be swept under the rug. If a rule has been finalized, the agency must follow mandates of the Administrative Procedures Act to change or repeal all or part of a rule. Thus, in order to change its controversial conflicts of interest rule that became final last April, the Department of Labor must follow procedural requirements set forth in the APA. There are exceptions to the APA — a so-called interim final rule, for example, could extend the April 2017 deadline to a later date — but the department still must follow notice-and-comment requirements before finalizing changes. And Congress may enact legislation to repeal or modify a final rule, but — it bears reiteration — current Senate rules generally require 60 votes in order to proceed. Rules and laws also may be changed by judicial decisions, but lawsuits are intensely fact-specific, time-consuming and difficult to predict.

Opportunities

So, what do the elections mean for the asset management industry? While it is bit difficult to read the tea leaves with great detail, there is no doubt the next administration creates opportunities to effect positive changes in laws and regulations that govern the asset management industry. There will be a regulatory hiatus during the next few months as appointments are finalized and agendas are prepared. Accordingly, now is the time to begin formulating a strategy to recommend policy changes. In particular, asset managers should examine regulations that are on the books with an eye toward revising or eliminating unnecessary, duplicative or unduly burdensome requirements. As Commissioner Michael Piwowar — who likely will be appointed acting SEC chairman when Mary Jo White departs on Jan. 20 — recently stated, “I have repeatedly emphasized the need to measure whether the rules and policies the agency implements are actually achieving their intended objectives.” And in Mr. Trump's statement announcing Mr. Clayton as his pick for the SEC, he noted: “We need to undo many regulations which have stifled investment in American businesses.” Reviewing regulations should not be a partisan issue. It is reasonable for the SEC and other agencies to take a look at existing requirements and to ask questions about whether they are working as intended, what the costs are and to consider the cumulative accretion of regulatory mandates.

But talking about potential changes is not enough. It is incumbent on us to spell out what changes are needed and why. This is an opportunity for asset managers to improve the legal, regulatory and compliance environment in which they operate.

David Tittsworth is a counsel in Ropes & Gray LLP's investment management practice in Washington. This content represents the views of the author. It was submitted and edited under P&I guidelines, but is not a product of P&I’s editorial team.