How developments out of D.C. are affecting financial advisors

February 21, 2024 4:14 PM

Enjoy complimentary access to top ideas and insights — selected by our editors.

Wealth managers recognize the need to be fully aware of what's happening in Washington, D.C., as the ramifications of legislative and regulatory change can have a critical impact on their businesses.

The Fed's decision to maintain the status quo on interest rates for the time being, pre-election proposals for 'billionaire taxes' on ultrahigh net worth individuals, and FINRA battling for its continued existence are among the developments making waves on Capitol Hill that may impact advisors.

Read our roundup below for more on these and other stories on the influence that changes in D.C. are having on wealth management.

Airplane landing in the evening with beautiful sunset background

redkphotohobby - stock.adobe.com

Wealth managers ponder Fed status quo on rates

Advisors have been carefully observing the Fed's monetary policy for the past two years to get a sense of what impact it will have on the economy. Despite Fed indications that interest rates would be cut at some point this year — and optimism that the first of those cuts would come quickly — rates remain unchanged so far.

"Given how far we have come, along with the uncertainties and risks that we face, the Committee is proceeding carefully," Fed Chair Jerome Powell said after the agency's February meeting.

With caution appearing to be the watchword, Nathan Place, retirement reporter at Financial Planning, spoke with six industry analysts to get their thoughts on where the Fed's latest action, or inaction, leaves wealth managers.

Read more:

Crash or land: What does the Fed's decision mean for wealth management?

Challenges in Congress and in court await DOL retirement rule

The Department of Labor's pending proposal on regulating retirement advice will need to overcome two significant hurdles before it sees the light of day, according to Benjamin Edwards, a professor of law at the William S. Boyd School of Law at the University of Nevada.

"One of the factors that might affect whether the rule makes it is exactly when it comes out and when that review period is and who is in Congress at the time," Edwards said. "If you get it done before the election and that period expires before a new Congress comes in, then it'll be up to the courts."

With advocates and opponents both inside and outside Congress, as well as trade and industry groups waiting to issue a challenge in the courts, the rule faces a long, arduous journey that may be heavily influenced by the winner of the presidential election.

Read more:

DOL retirement proposal faces 2 potential checks before election

Nonpartisan experts weigh in on pre-election on proposals to tax the wealthy

The likelihood of any changes in the amount of tax paid by high earners before the election is exceedingly slim, but what may happen thereafter has wealth managers prognosticating on what the next president and new Congress will do.

"Taxes for ultrahigh net worth individuals have always been complicated," said Steve Wamhoff, federal policy director at the Institute on Taxation and Economic Policy. But whether the rules are simple or more complicated, "Either way, there's plenty of work for financial advisors and wealth managers."

Financial Planning talked with Wamhoff and two other authorities from nonpartisan organizations to find out their views on the tax proposals for wealthy individuals that advisors should note.

Read more:

Will voters veto 'billionaire taxes' and other plans to tax wealthy clients?

IRS cost-of-living modifications raise ceiling for retirement savers

A raft of annual cost-of-living adjustments by the IRS in the wake of rising inflation and the impact of Secure 2.0 has given individuals saving for retirement a significant boost.

Contribution limits for 401(k)s, IRAs, 403(b)s, most 457s and the federal government's Thrift Savings Plan have all gone up, although catch-up contribution limits are unchanged.

The income ranges for eligibility to make deductible contributions to traditional IRAs, to contribute to Roth IRAs and to claim the Saver's Credit have also increased.

Read more:

IRS increases 401(k) and IRA limits

Lawsuit embroils FINRA in life and death struggle

The very nature of FINRA has been called into question by a lawsuit, which the plaintiffs may be quite likely to win, according to industry experts.

The case against the agency filed by Alpine Securities argues that it is unconstitutional for FINRA, as a private body empowered by the SEC, to regulate the securities industry. Under the U.S. Constitution, it can't be both a public enforcement agency and a private industry group, says the legal complaint.

Meanwhile, FINRA intends to vigorously hold its ground, citing in its defense the Securities Exchange Act of 1934, which lets "private self-regulatory organizations continue to exercise a primary supervisory role over their members, subject to comprehensive SEC oversight."

Read more:

FINRA fights for life in 'existential threat' D.C. court case