Why a Warren Win Worries Wall Street… And Wealth Managers
Pedestrians taking the shortest route need only 17 minutes to walk from Wall Street to Warren Street in Lower Manhattan. But the ideological divide between those two locations stretched light years last week when campaign workers for Democratic presidential hopeful U.S. Senator Elizabeth Warren occupied a bar on Warren Street for a debate watch party.
“She is the one candidate that Wall Street most fears. If she is the candidate, there will be WWIII between Trump and the securities industry and her,” predicts Andrew Stoltmann, a Chicago-based plaintiff lawyer and a director and past president of the Public Investors Arbitration Bar Association.
“Elizabeth Warren is very inflammatory. The ire is created in the way she approaches things,” says Ross Gerber, CEO of Santa Monica, Calif.-based Gerber Kawasaki Wealth and Investment Management, which has more than $840 million under management.
Stoltmann both welcomes Warren’s proposals and her recent rise in the polls. “Using Wall Street as a piñata is a really, really effective strategy. Even if voters don’t understand the nuances of regulations she proposes, they remember 2008,” he says.
But a lawyer who defends FAs against investor allegations focuses on the threat he perceives that the Massachusetts Senator poses to his clients and their clients.
Ex-head of Finra enforcement
“If Elizabeth Warren gets elected, the market goes down 10%,” says Bradley Bennett, a former head of Finra enforcement who practices law in Washington, D.C.
Warren draws Wall Street’s fear and ire, thanks in large part to the multiple plans she has proposed will occupy her time if she reaches the Oval Office, including creating a 2% wealth tax for households worth more than $50 million and 0.1% tax on all trades in stocks, bonds, and derivatives — aimed at eliminating high frequency trading and endorsed by other Democratic presidential contenders.
But she also rates the securities industry’s enmity because throughout her senate career — arguably more so than her Democratic rival U.S. Senator Bernie Sanders — she effectively has added bite to regulations (creating the Consumer Financial Protection Bureau) and argued for removal of top banking executives (ask two former Wells Fargo CEOs about that).
But how dramatically would a Warren win play out for Wall Street, and, more specifically, financial advisors and their clients, who typically fall among the nation’s wealthiest demographic groups.
Not as dramatically or detrimentally as some suspect, even some of her naysayers concede, and perhaps as a welcome cleansing, advocates of her policies argue.
“Barring a major market correction, there will be a more aggressive posture on banks in Washington, but I don’t think it will be anything the industry can’t live with — nickel and diming, papercuts,” says Bennett, who also adds that none of that will happen unless Democrats win the Senate and keep the House, along with Warren securing the White House.
“I think a lot of Elizabeth Warren’s ideas are beneficial for the financial services industry,” says Aaron Klein, the policy director for the Brookings Institution’s Center on Regulation and Markets, who served during the Obama administration as a Treasury Department deputy assistant secretary for economic policy and as chief economist for the Senate’s Banking Housing and Urban Affairs Committee, helping craft the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Wall Street needs policing and benefits from it, Klein argues.
“Unsustainable products are not sustainable. The best thing to happen to the agricultural industry is USDA-inspected meats. People used to not go into restaurants because they were not clean,” he says.
It’s not as if Warren has failed to benefit herself from investment arenas. Her own household wealth may equal as much $11 million, according to her personal financial disclosure filed with the Federal Election Commission and tallied by the nonpartisan Washington, D.C.-based Center for Responsive Politics. Her maximum net household wealth trails only that of President Donald Trump ($1.7 billion), John K. Delaney, a Maryland congressman, ($279.7 million) and Beto O’Rourke, a former Texas congressman ($16.3 million), among the White House seekers in 2020 who have filed disclosure statements. Notably, Democratic frontrunner and former Vice President Joe Biden has yet to disclose his finances and has asked the FEC for a deadline extension, along with eight of the other (at last count) two dozen candidates.
Warren’s disclosures show her holdings are mostly under the custody of the Teachers Insurance and Annuity Association of America-College Retirement Equities Fund; she has stakes in small cap, international equity, bond and real estate markets — and not all of those investments are with indexed funds.
“She’s a good saver,” says Gerber after viewing her disclosure report. “She’s clearly benefited from investing and following that strategy of owning a bunch of equity funds and having a broadly diversified portfolio. She is an example of how you make a decent amount of money in the markets.”
A Warren presidential administration would lead to significant changes for FAs if Democrats control both the Senate and the House, Stoltmann predicts.
“She would put a non-industry defense lawyer as the head of the SEC,” he says, a reference to the current Trump appointed agency chairman Jay Clayton, a former Sullivan & Cromwell partner. As a result, expect “a real fiduciary duty” to become enforcement and the Best Interest Rule issued by the SEC to go by the wayside if Warren entered the White House, he adds.
FAs and their clients should worry less about a Warren White House and more about the doings of its current occupant, Brookings’ Klein says. “President Trump has proven himself to be a complete opportunist with inconsistent policies and a lack of understanding of how the financial services industry work,” he says, pointing specifically to Trump’s proposals to tax remittances to Mexico to pay for a border wall.
Warren and Trump both are politicians and for Gerber that automatically means discounting the impact of their rhetoric.
“We’re still waiting for Trump’s wall and you’ll still be waiting for Elizabeth Warren’s wealth tax if she gets elected,” Gerber predicts.