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Law Easing RIA Advertising Restrictions Faces Veto

September 2, 2016

A bill designed to reduce paperwork and let RIAs use testimonials, in addition to easing other restrictions, is facing opposition from the Democrats, Financial Advisor magazine reports.

The Investment Advisers Modernization Act of 2016, which is expected to be approved by the House of Representatives within days, according to the publication, would repeal a 1961 rule prohibiting the use of testimonials and references to past recommendations when advertising documents are distributed to “sophisticated” and high net worth clients, according to a notice from the Investment Adviser Association. It would also exempt advisors from some aspects of custody requirements in regard to restricted securities, eliminate the requirement that advisors to private funds send multiple documents with “repetitive” information to certain types of investors, and make it easier for advisors who aren’t in partnerships to compete, according to the industry group. IAA CEO Karen Barr and other supporters of the legislation say it’s necessary to overhaul outdated rules dating back 75 years to the original Advisers Act, Financial Advisor magazine writes.

Rep. Maxine Waters (D) (Getty)

But Rep. Maxine Waters, D-Calif., a member of the House Financial Services Committee, and Rep. Carolyn Maloney, D-N.Y., who sits on the Financial Services subcommittee overseeing the SEC, have signaled that the bill could face a veto from President Barack Obama and that the Senate wouldn’t be able to override it, the publication writes.

Waters said the bill is part of a Republican attempt to weaken regulation of the financial industry, according to Financial Advisor magazine.

The Consumer Federation of America and Americans for Financial Reform also oppose the bill, saying it would hurt retirement savers by abolishing key disclosure requirements for private fund advisors, the publication writes.

The two investor protection groups say that as of three years ago, 35% of the assets in private funds were from retirement funds, primarily public pensions, writing in a joint letter that the bill would “return private funds to the shadows of the financial system,” according to Financial Advisor magazine.

By Alex Padalka
  • To read the FA Magazine article cited in this story, click here.