By: John J. Kohut

Financial Services vs. the Washington Mindset

While it looks like Washington is headed for a summer of scandal with round-the-clock Congressional hearings and special prosecutors galore, it’s worth remembering that on a parallel track it’s business as usual, with legislative committees and federal regulators hard at work trying to shape a broad economic agenda.

Recent news that the financial services industry has stepped up its lobbying efforts in Washington, going so far as to hire a veteran of the Bush Administration to act as its “rapid response” voice when the going gets tough, should come as no surprise. According to reports, the industry is specifically concerned with the city’s obsession with the “too big to fail” concept and the growing talk among some prominent regulators and legislators about the eventual need to break up the biggest banks.

It’s right to be concerned. While no one suggests that some vast sea change is imminent, these concepts are increasingly what people in Washington talk about when they talk about the financial services industry. Involvement in these discussions now is similar to the approach being taken by corporate America on the tax reform front. Nothing is imminent there either but in both cases its matter of playing the long game.

The crux of the challenge facing the industry is centered in the debate over “too big to fail.” Following the 2008 financial crisis and its fallout, this concept became the dominant mindset of Congressional legislators and federal regulators. There is no discussing “the big banks,” “Wall Street” or the continued rollout of regulations to implement the Dodd/Frank financial reform law without the conversation turning to the issue. The reason for this is simple: they are all convinced that another financial crisis just as catastrophic as 2008, could be lurking right around the corner.

The prevalence of the mindset is evident in just a cursory look at what types of bills are being written in Congress. The Senate recently voted overwhelmingly to support a nonbinding resolution introduced by Sens. Sherrod Brown (D., Ohio) and David Vitter (R., Louisiana) to end federal subsidies that benefit the largest U.S. banks.

Both have now introduced a real bill titled “Terminating Bailouts for Taxpayer Fairness,” that would force any bank with more than $500 billion in assets to set aside 15 percent in capital reserves to protect against any crisis. The implied punitive aspect of the bill is that larger banks would find it so detrimental that they would be forced to reduce their size. And while there’s no sign this proposal is going anywhere fast, it does continue to force a split between the interests of the big banks and the smaller side of the same industry.

And earlier this year Iowa Sen. Tom Harkin (D) partnered with Rep. Pete DeFazio (D., Oregon) to jointly introduce a bill that would impose a 3-cent tax on every $100 financial transaction, be it in stocks, bonds or other assets. Modeled on the approach being talked about in the European Union, the whole idea of taxing transactions is another government hedge against the bottom falling out in a crisis.

Even Rep. Jeb Hensarling (R., Texas), the chair of the House Financial Services Committee, continues to come back to what he says is his central approach to the industry: to limit taxpayer exposure in a crisis and to get rid of what he sees as Washington’s “insider” role in the economy. Specifically he wants to rid Dodd/Frank of its “orderly liquidation” planks, arguing that even their presence implies that Washington will be there to pick up the pieces when things go south again.

Further, Hensarling is currently pressing the Department of Justice to produce evidence of cases where the agency decided against full prosecution of financial institutions because to do so would have unintended negative fallout on the national economy, an approach alluded to in Congressional testimony by U.S. Attorney General Eric Holder.

And it is worth remembering that Dallas Federal Reserve President Richard Fisher, who has crossed the country speaking about the need to break up the big banks, was a huge hit in Washington at this year’s annual Conservative Political Action Committee conference. The populist approach of the Tea Party wing of the House GOP, no friend to the Federal Reserve, welcomed Fisher and his thoughts with open arms.

In short, the anecdotes coming out of Washington are troubling to the industry and they should be. There is little evidence of a counter mindset, one that believes in leaving the big banks alone, that isn’t fearful of a rerun of 2008, or that is happy with the status quo.

Serious people in New York and Washington know that the biggest battles for the financial services industry are yet to come.

Washington Wisdom:

“You start thinking about history and start thinking in longer sweeps of time. And you start saying to yourself, the 3 ½ years you’ve got is not a lot.”

President Barack Obama, speaking on Monday at a New York City fundraising event

“It certainly diverts attention from whatever the White House is trying to do on a jobs agenda, or the economy or immigration reform because your time is occupied dealing with all these situations. The distraction can be severe.”

Ken Duberstein, chief of staff to President Ronald Reagan, on the how the trio of controversies now dogging the president can hamper the White House.

“Benghazi and the IRS, each one taken in isolation is in the ankle-biting category. But if you add up enough ducks, they can peck you to death. It’s a sea of trouble.”

David Kennedy, presidential historian

“This is going to tie Congress into tighter knots than it was a week ago. It’s going to make it tougher for any Republican to do business with Democrats.”

Matt Bennett, president of Third Way, a Democratic policy think tank

“The president’s not at risk – our majority’s at risk. You plunge the country into economic crisis, you lose your majority.”

Rep. Tom Cole (R., Oklahoma) on the upcoming debt ceiling debate

By: John J. Kohut

When Good News is the Problem

In just about any other town in America good economic news is cause for rejoicing and renewed faith in the future. Not so in Washington.

Here the realization that our shrinking national debt, rising tax revenues, significant declines in federal spending (recently bolstered by the sequester cuts), big drops in Medicare and Medicaid costs and an unexpected turnaround in the fortunes of federal housing giants Fannie Mae and Freddie Mac have had the cumulative effect of beginning to right the economic ship of state has in turn upset the immediate political strategies of both parties.

Since the economic crisis of 2008 both the Obama Administration and their Republican opponents in Congress have been forced to practice a very different type of political game, one where long gone were the days of enticing legislative votes with promises of federal largesse, where the government (like its citizens) has had to learn how to function with less, and where decisions are only made at the last minute under the duress of pressure points, with the understanding that inaction would only make things worse.

This week’s news that improving fiscal conditions would significantly move back the date of the impending breach of the federal debt ceiling to sometime in middle or late October has inadvertently robbed both sides of the impending pressure point each had been depending on to drive their political strategies over the next several months.

The original thinking in the House GOP leadership was to use the expected debt ceiling breach date of sometime in late August or early September to force a budget deal for the coming 2014 fiscal year before August 2nd, when Congress leaves town for the August recess, not returning to work until after Labor Day. If it had worked, this would have killed two big birds (budget and debt) with one stone.

With the abbreviated summer legislative calendar there’s simply not a lot of time to accomplish anything: only eight days in session remaining for May, 16 in June and 14 in July. With no impending economic doom in either August or September, House members will spend their August recess town hall meetings back home with absolutely no major fiscal work accomplished.

Instead, the fight now moves into late September where one wag warns of a “malfunction junction” as the debt limit, the need to fund the government for the new fiscal year (starting October 1st) and the start up of enrollment programs for the Affordable Care Act (ACA) (which also begins on the 1st) all converge under the threat of default, a government shutdown and general mass confusion.

On the Democratic side, the White House now loses the same late summer pressure point and with it any slight edge the president had in trying to shape the legislative agenda over the next five months. It’s pretty clear now that the immigration reform fight will consume what’s left of the Senate’s time this spring and summer. The best scenario calls for a bill to reach the Senate floor in late June, just prior to the July 4th recess – and that’s if everything goes right.

On the fiscal front, the president had hoped to wrap up debt and budget issues before his summer vacation, returning to devote September to the roll out of ACA enrollment, and the massive education push that it will entail to make it a success. That schedule’s out the window now as September will once again be devoted to one long “High Noon” showdown.

Strategists from both parties see danger lurking in the coming five month stretch between now and September, a period described as a “black hole” that is likely to find both sides rudderless in the absence of an impending crisis, periodically punctuated by legislation being passed in either chamber with absolutely no hope of passage in its counterpart. And the bulk of those votes will be designed with the 2014 mid-term elections in mind, putting opponents on defense and using their recorded votes as fodder for negative television spots next year.

Under the shadow of a surging Dow, the news that the federal deficit has begun to shrink may be cause for celebration but its unintended consequence in Washington is another summer of no big deals and no big solutions.

Washington Wisdom:

“One budget’s from Mars, one budget’s from Venus. Maybe we’re in the same universe, but not the same planet.”

NBC News’s Chuck Todd, on the irreconcilable 2014 Senate and House budget proposals

“There isn’t any sense of urgency right now.”

Sen. Bob Corker (R., Tennessee), suggesting that there’s no pressure currently to address the debt ceiling

“In the old days, you’d have to carry the Senate Finance chair out on a stretcher.”

Ed Rollins, veteran GOP strategist, on the growing list of retirements from the U.S. Senate, including that of Senate Finance Committee Chairman Max Baucus (D., Montana).

“That fight’s over. It really is a different context, now that the sequester is a reality.”

Rep. Peter Welch, D., Vermont), suggesting that the effort to reverse the sequester is pointless and that going forward it’s now about fixing critical funding problems.

“It’s going to be practically impossible to get the rate down. No one wants to cut their preferences.”

Howard Gleckman, fellow at the nonpartisan Tax Policy Center, on the fight between seeking a lower corporate tax rate and industries who will refuse to give up their own special tax breaks in order to get there.

In this one-day conference—designed for senior business executives, chief compliance officers and their legal counsel—industry experts from manager and sponsor firms discuss the most challenging issues they face and their best practices with respect to compliance, marketing, due diligence, client communications, and distribution.

The regulation and oversight of the advisory solutions industry continues to evolve and upcoming changes will have a significant impact on how we do business. At this seminar, you will discuss the latest developments and connect with your fellow executives.

View the agenda and register today.

Thursday, May 9th, 2013

Register Today

MMI launched The Managed Advisory Solutions Institute for Education to help member firms cost effectively train personnel and leverage experience from industry experts. MMI has delivered many successful Managed Advisory Solutions workshops and is pleased to announce the next workshop will be held on Thursday, May 9th, 2013 in New York.

The MMI has teamed with Maureen Wilke of Wilke and Associates, an industry education and training firm, to deliver this workshop (www.connectedadvisor.com). This is a one-day workshop designed to educate new hires or employees new to managed solutions including sales teams, operations staff, product and marketing personnel and customer service representatives from investment managers, sponsor firms and service providers.

The workshop provides a well-rounded industry overview in a facilitator-led format that will include background information, platforms, terminology, business processes, industry data/statistics and advisor best practices.

As a follow up to the workshop, participants will be sent session highlights, which include the key ideas to reinforce the important learning points.

IMCA accepts 3 CE hours(toward CIMA®/CIMC®/CPWA® certifications) for the May 9th, MMI 2013 Managed Solutions Workshop. The course ID for this program is: 13MMI004. Certificants who attend the program are individually responsible for completing and submitting the CE form, http://www.imca.org/main/do/ReportCIMACE, in order to receive CE credit.

David Berkowitz, Marc Brookman, Mark Hancock and Burt White Elected Board Members

WASHINGTON, D.C., April 30, 2013 – The Money Management Institute (MMI), the national association representing the managed investment solutions and wealth management industry, today announced that John K. Moninger, Managing Director of Retail Sales for Eaton Vance, has been elected Chairman of MMI’s Board of Governors for the coming year. Three other appointments were also announced: Joseph Schultz, Senior Vice President, Head of Intermediary Sales for American Century Investments, is Chairman-Elect for 2014-15; Lorna Sabbia, Managing Director, Head of the Managed Solutions Group at Bank of America Merrill Lynch, is MMI’s Treasurer; and John Sweeney, Executive Vice President of Fidelity Investments, was named Secretary.

Mr. Moninger assumed the duties of office at the 2013 MMI Annual Convention in New York the week of April 22nd, when past Chairman Matt Witkos, President of Eaton Vance, completed his term and became Chairman Emeritus.

MMI President Christopher L. Davis also announced that David Berkowitz, Marc Brookman, Mark Hancock and Burt White have been elected to the MMI Board of Governors. Mr. Berkowitz is President of Lincoln Financial Network, the retail distribution arm of Lincoln Financial Group. Mr. Brookman is Managing Director and Associate Director of the Consulting Group at Morgan Stanley Wealth Management. Mr. Hancock is a Managing Director at Goldman Sachs Asset Management where he leads the U.S. Advisor Sales Group. Mr. White is a Managing Director and Chief Investment Officer of LPL Financial.

“Each of our new Governors brings vast experience and fresh perspective to our Board. With their contributions and the leadership of Chairman Moninger, MMI will remain at the forefront of the important trends and issues shaping the future of advisory solutions,” said Mr. Davis.

MMI’s Board of Governors is comprised of representatives from 32 industry firms – nearly evenly split between asset management companies and broker-dealers – that handle more than 90% of the approximately $2.7 trillion in assets under management in the advisory solutions industry.

“I am honored to be chosen to lead the MMI Board of Governors,” said Mr. Moninger. “Having joined immediate past Chair Matt Witkos here at Eaton Vance last November, we now have a unique opportunity to work together – not only as business partners – but to advance the mission of MMI and the services it provides to member firms. As I take over from Matt, MMI is in a very strong position. Our membership continues to grow at a record pace, our sold-out conferences and educational programs deliver exceptional value and content, and we continue to set the industry standard for data and analysis on the advisory solutions marketplace.”

Prior to joining Eaton Vance in November, 2012, Mr. Moninger served as Executive Vice President, Advisory and Brokerage Consulting Services, at LPL Financial Services. In that position, he was responsible for the firm’s advisory and brokerage platforms and for leading a team of product consultants.  He also led LPL’s Financial Planning Group and Wealth Management Services, which provide advice and solutions for high-net-worth and ultra high-net-worth clients. Previously, he had been national consulting director for investment solutions for UBS Financial Services. He currently serves on the board of directors of the Investment Management Consultants Association and the Naval Special Warfare Family Foundation.

About the Money Management Institute (MMI): Since 1997 MMI has been the leading voice for the global financial services organizations that provide advice and professionally-managed solutions to individual and institutional investors. Through industry advocacy, educational initiatives, regulatory affairs, data reporting and professional networking, MMI supports and advances the growth of advisory solutions. MMI members’ advice-driven investment solutions serve an evolving worldwide financial landscape and their organizations are committed to the highest standards of fiduciary responsibility and ethical conduct. For more information, visit www.moneyinstitute.com.

Advisory Solutions Firm of the Year – The sponsor firm that most exemplified overall excellence and contributed to the long-term success and sustainability of the industry

Winner: Merrill Lynch

Advisory Solutions Product of the Year – The sponsor firm that launched the most innovative product that contributed to the growth of the industry

Winner: Brinker Capital – Crystal Suite – Crystal Absolute Return and Crystal Diversified Income

Advisory Solutions Investment Manager of the Year – The investment manager exhibiting the qualities most valued by program sponsors

Winner: BlackRock

Advisory Solutions Emerging Manager Exhibiting Greatest Innovation and Growth – The emerging (smaller) investment manager that demonstrated strong growth in assets and made a meaningful contribution to innovation within the advisory solutions industry

Winner: F-Squared Investments

Advisory Solutions Established Manager Exhibiting Greatest Innovation and Growth – The established investment manager that demonstrated strong growth in assets and made a meaningful contribution to innovation within the advisory solutions industry

Winner: Virtus Investment Partners

Advisory Solutions Service Provider of the Year – The partner that best contributed to the innovation, growth and long-term sustainability of the advisory solutions industry

Winner: FolioDynamix

Advisory Solutions Technology Innovation or Operations Improvement of the Year – The firm that exhibited the greatest gain in efficiency or growth due to a technology or operations improvement

Winners (a tied vote): LifeYield and Vestmark

Advisory Solutions Field Sales Team of the Year – The firm exhibiting the most effective field sales strategy and execution resulting in a significant growth in sales

Winner: Morgan Stanley Wealth Management – Consulting Group Wealth Advisory Solutions Field Sales Team

Advisory Solutions Marketing Program of the Year – The firm whose marketing program best promotes the growth and development of advisory solutions

Winner: LPL Financial – Advisor University

Advisory Solutions All-Star Achiever Award – The individual who has made the greatest contribution to an MMI committee or industry issue

Winner: Hanna Salvatore, New York Life Investment Management

During the dinner, the MMI Board of Governors honored Steve Gresham, Senior Vice President of the Private Client Group for Personal Investing at Fidelity Investments®, as the recipient of the 2013 Advisory Solutions Pioneer Award. Mr. Gresham was recognized for his thought leadership and career-long contributions to the development of the managed solutions industry. The Pioneer Award is given annually to an individual who embodies MMI’s mission to serve as an advocate and catalyst for the growth of the managed investment solutions and wealth management industry.

The winners of two other special awards were also announced. ING Investment Management was honored with the Gateway to Leadership Award for its long term commitment and support of the Gateway to Leadership workplace diversity program. Jack Sharry, Executive Vice President of LifeYield, received the MMI Chairman’s Award in recognition of his outstanding contributions and service to MMI in the area of retirement solutions.

Proceeds from the awards dinner will benefit the Gateway to Leadership program, a 501(c)(3) charity that is a partnership between MMI and the UNCF. Gateway focuses exclusively on fostering workplace diversity in the financial services industry by providing internships and career opportunities for students from historically black colleges and universities.

About the Money Management Institute (MMI): Since 1997 MMI has been the leading voice for the global financial services organizations that provide advice and professionally-managed solutions to individual and institutional investors. Through industry advocacy, educational initiatives, regulatory affairs, data reporting and professional networking, MMI supports and advances the growth of advisory solutions. MMI members’ advice-driven investment solutions serve an evolving worldwide financial landscape and their organizations are committed to the highest standards of fiduciary responsibility and ethical conduct. For more information, visit www.moneyinstitute.com.

Co-Chairs:
Steve Seifert, Edward Jones
Robert Tousignant, Federated Investors

More details to come.

Co-Chairs:
Noreen Beaman, Brinker Capital, Inc.
Gene Mulligan, Merrill Lynch

More details to come.