Our Next Event: Alts Expo - Dec 13th
Alternatives have already been in the limelight several times in the Biden Administration, but the current market and regulatory landscape may represent the “calm before the storm.”
Anya Coverman and Doyle Bartlett joined WealthChannel’s Andy Hagans to discuss the upcoming IPASummit 2023, and the most pressing issues in the alternatives industry right now.
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- A brief overview of the IPA, including its activities, events and programs.
- A legislative update from Capitol Hill, including the fallout from recent bank failures.
- Why President Biden’s proposal to end or severely limit the 1031 exchange mechanism would have unintended consequences that would be harmful to the real estate industry as well as to individual citizens.
- Details on the upcoming IPASummit 2023, including several distinguished guests who will be speaking with attendees.
- A regulatory update including federal as well as state regulation (and Andy’s thoughts on why the push to redefine the meaning of “fiduciary duty” may have unintended consequences).
- How asset managers, financial professionals, and even individual investors can get involved with IPA to help improve the accessibility of alternatives as well as outcomes for investors.
- IPASummit 2023 (IPA.com)
- Biden Budget Proposes End To 1031 Exchanges, Carried Interest Tax Break (Bisnow)
Anya Coverman, The Institute For Portfolio Alternatives
Doyle Bartlett, GrayRobinson, P.A.
About The Alternative Investment Podcast
The Alternative Investment Podcast is a leading voice in the alternatives industry, covering private equity, venture capital, and real estate. Host Andy Hagans interviews asset managers, family offices, and industry thought leaders, as they discuss the most effective strategies to grow generational wealth.
Andy: Welcome to the “Alternative Investment Podcast.” I’m Andy Hagans. And today we’re taking a trip to Washington, D.C., or at least we’re talking about the upcoming IPA Summit in Washington, D.C., which is a very exciting event. Joining me today, I have two distinguished guests. First up, Doyle Bartlett, managing shareholder in the D.C. office for GrayRobinson. Doyle, welcome to the show.
Doyle: Thank you, Andy. Looking forward to the conversation.
Andy: Yes. And also, we have Anya Coverman joining us who’s been on the show previously. Anya is president and CEO at IPA, Institute for Portfolio Alternatives. Anya, welcome back.
Anya: Thank you. It’s always great to be here and I’m talking about one of my favorite subjects. So, wonderful to be here.
Andy: All three of us, I think we’re all kind of Alts nerds, if I could say that. I don’t mind using the phrase nerd, because I think nerds are cool again. So, I think we’re cool. But, you know, we have so much to get through because we wanna talk about legislative updates from the world of alternatives, the upcoming summit, and then get into some regulatory issues. And we have a lot to cover. So, let’s just dive in. Let’s dive in with the latest in legislative updates. There’s so much that, you know, the alternatives industry, it touches so many aspects of finance, real estate, tax issues. So, Doyle, why don’t you bring us up to speed, you know, what are the main legislative issues right now for alternatives?
Doyle: Oh, thanks, Andy. And I think our main focus right now is as Congress got sort of a little bit of a slow start, they usually start up right in January because of the delay in getting the speaker’s vote through. It sort of started a little late, so it started in March. The President Biden was a little late getting his budget in, which usually starts a little earlier. So, that process has started. We’re now beginning a series of hearings in both financial services and the banking committees as well as the tax-writing committees that we focus on, for IPA that’s all coming together. I think the overarching thing that Congress is gonna do this year primarily is look at raising the debt ceiling. Certainly, a big issue for everybody because of its impact on the economy, potential impact on interest rates.
But I think ultimately, now it looks like maybe late summer, early fall, Congress will address that debt ceiling question, likely to raise the debt ceiling. There’ll be a lot of smoking around it and there’ll be some negotiations. I don’t think there’ll be any real attempt not to fulfill our obligations to pay the money we’ve already spent. So, I think we’ll get a debt ceiling increase, but I think that’s later in the year. So between now and then, there’s a big focus on that. And I think recently, the last couple weeks with the liquidity failures in the banking industry between Silvergate Bank and Silicon Valley Bank, as well as Signature Bank up in New York, that’s sort of taken a lot of the focus away as well. And that really goes to what’s the impact of the interest rate environment’s had on the liquidity of these banks, what impact that’s had on the value of their underlying investments in government bonds and other long-term assets, as well as just sort of the oversight and regulation of financial institutions generally. And I think that will…we’re starting with hearings this week. We’ve got the federal regulators up. And then they will continue to try to do that oversight and see what happened with those banks and we’ll continue to impact where we’re going from an interest rate environment.
Andy: Yeah, my ears perk up, Doyle, when you mention the regulatory, the banks, all that stuff, it reminds me during the Obama administration, I forget, was it Rahm Emanuel who said something like, “Never let a serious crisis go to waste.” So, you know, Mike, it’s certain when I hear something like that is these bank failures or weaknesses with regional banks, it’s just used as some sort of, I don’t know, almost a fake motivator to do something that’s almost totally unrelated, like, you know, related to real estate, or 1031s, or something like that. But I guess we’ll get there. We can talk politics later in the show. You know, Anya, from your perspective, you work with so many of these asset managers and some of the larger players in alternatives. What’s top of mind for them in terms of, you know, legislation that’s being talked about right now?
Anya: Sure. Well, look, we’re at the start of the 118th Congress. So, to some extent that means there’s a lot of fresh issues that are on our members’ minds. But if you think about where we’ve come from, in the 117th Congress, we’ve fought a lot of different issues around alternatives, from legislation that would have effectively prevented alternatives in IRA accounts, to legislation limiting or, you know, almost eliminating entirely the use of 1031-like kind exchanges. We fought on regulatory oversight issues, and, you know, there was very little capital formation proposals over the course of the last couple years. So, sometimes I like to say, you know, issues never die in D.C. So, we have a huge opportunity ahead of us in the 118th Congress to make new relationships and to do a lot of education, we may see those issues continue to, you know, pop up again, that we’ll need to keep fighting.
And there is a lot of…you know, we’ve had a couple different crises, right? There’s been the FTX failure, now, the banking, you know, SVB crisis, if you will. And to some extent, a lot of products get lumped under an alternative umbrella. And so, it’s our job to meet with our policymakers to explain the universe, the very highly regulated universe that our members’ products live under, and to distinguish from other issues going on, you know, in our political and regulatory sphere. So, in some ways it’s as busy as ever because there’s issues from the last Congress that will carry over, whether they’re here today, they will certainly be here at some point in the next two years. There’s a lot of education to do. There’s always a new issue, a new crisis that, you know, you have to spend time, you know, with policymakers distinguishing who you are and what your industry represents.
And, you know, that’s a big thing that the IPA does. We represent a critical mass and are able to meet with regulators and legislators and spend time on our issues. And that’s why our upcoming conference, IPA Summit, is so important, and we’ll talk about this a little bit later, but we have regulators coming to speak to us and with us, we are on Capitol Hill. And those things are as important as ever. There’s a lot of focus right now in addition to everything else on alternative products, complex products, private funds. So these are things that we need to be at the forefront of.
Andy: Totally. And, you know, I respect the long-term thinking, you know, that, Anya, you kind of balanced, this is a fresh Congress. There’s new opportunities to communicate, to build relationships, but also that long-term thinking where, look, these are perennial issues, at least a lot of them are that come up over and over. So, you kind of have to play the long game. And when I’m thinking about the alternatives industry in general, and even IPA specifically, I’m thinking about how far things have come in the last 10, 20, 30 years, and how many great strides have been made in alternatives to improve accessibility, and also ultimately improve outcomes for retail investors, for the end clients, right? That’s why the whole industry exists. And so, I think it’s good to just kind of keep it in context, like things are moving in the right direction, you know, some of these perennial issues that come up.
I almost feel like, it’s like we’re playing defense. You know, it’s like, oh, this bad idea came up. You know, how do we communicate? And specifically, you know, on bad ideas, okay, I try not to get political on this show. I’m not really gonna get political now, you know, this is policy, but the recent Biden budget, it recommended or proposed totally eliminating the 1031. And I remember a year ago, I was talking about this issue with some guests, and they were talking about capping it. And I actually brought up this Bisnow article, and I’d like to read directly from it. This is a quote from the White House. “The loophole lets real estate investors, but not investors in any other asset put off paying tax on profits from deals indefinitely, as long as they keep investing in real estate, which amounts to an indefinite interest-free loan from the government. It’s the only asset that gets this ‘sweetheart deal.'”
So, the administration is recommending getting rid of 1031s that would bring in…they claim would bring in an additional $19 billion to the federal budget. But Doyle, my question for you, and you already alluded to this with the debt ceiling, there’s always posturing going on in D.C., right? So, I kind of get it like, you know, you have rhetoric from one side, you have rhetoric from the other, and there’s sort of that game of rhetoric being played. And sometimes when these policy proposals are being released or budget proposals, they’re really just a form of rhetoric. They’re not really even intended to ultimately to become law. So, this specific proposal has me thinking, you know, the 1031 exchange stimulates so much economic activity that even if you want more tax revenue, I would think you would like the 1031 exchange, because without it, the real estate sector is gonna really kind of freeze up and you’re gonna lose a lot of that sort of second-order tax revenue. So, my question, Doyle, is, does the administration actually think this would be a good idea to even achieve their goals or is this just amount to posturing or rhetoric or trying to kind of throw red meat to their base?
Doyle: Well, I think it’s a little bit the latter. I think it really is sort of showing you sort of where they are from a high-level philosophical basis of saying, you know, we really want to go after these tax breaks that seem to benefit the rich. And, from a rhetorical standpoint, that’s the most important to ’em. I think when you dig down into it the way you have Andy and really look at what the economic impacts would be of making this change, it really impacts Main Street America and more importantly the retail investors and others who have saved their entire lifetimes and use 1031 lifetime exchanges as a way to preserve that capital for their retirement and going forward. So, the biggest challenge that we have goes a little bit back to, how do we educate the policymakers that, well, you hear this high level, let’s eliminate 1031s.
Here’s what the real implications are. Here’s what it’s gonna mean for the folks, for that gas station owner who spend this entire life, you know, paying for his local gas station. Now he’s got a million-dollar property that he doesn’t wanna pay property tax on that or capital gains tax on that. Spent 40 years building the business, going to sell that business. He can do a like-kind exchange and generate income. That’s the sort of education that we need to do. And then going back to your earlier point, and it’s not so much being on defense, we play a lot of defense. It’s trying to prevent sort of unintended consequences. A lot of this rhetoric that comes out here, and your point as well may, you got a crisis, you want to go solve the crisis. Our job is to go up and explain to policymakers, both regulatory and legislators regulatory, this is what the impact of this is.
And we are sometimes, you know, collateral damage, you don’t think about, here’s what it’s gonna have impact on this part of the industry. And that’s really the challenge for all of us is to develop those relationships so we’re not running in there in a crisis every time. Anya referred a little bit earlier to last year’s fight about the IRA investment provision, which was really, we were able to effectively overcome that because we already had a relationship with the people that were writing those bills. It could go on and explain to them very quickly, here’s one of the impact it would have on IRA investors not being able to have access to alternative investments. And that was a very effective conversation.
Andy: I understood. And I mean, for me, again, with the 1031, you mentioned the unintended consequences. So, I’m thinking we have a country that has underinvested in housing units and we’re short 5 million housing units. So, the last thing we want to do is disincentivize investment in real assets, in multi-family especially. So, Anya, you know, you’re talking with members, IPA members, is anyone really taking this seriously or is it basically being viewed as like bluster?
Anya: Yeah, that’s a great question. I think I had a few different points to make on this. I mean, as we all know, real estate is an important part of investors’ portfolio, provides diversification, a hedge against inflation. An interesting statistic is that, since the 107th Congress, well, less than 9% of members of Congress have any background in real estate, which is a really surprising number. So, you have to take that into consideration when they’re looking at these types of policies and understanding the unintended consequences and the impact, you know, for investors and for the economy largely. You know, you made a point at the beginning of your question, which is…and there’s a little bit of misinformation. So, when President Biden, you know, put out the budget proposal, there was discussion over eliminating it entirely. But the actual technical text is the same text that we saw during the reconciliation process a year ago, which is the $500,000 and a million-dollar limit.
So, in any case, that’s still not good for the economy. It’s still not good for retail investors. There is a lot of education that needs to get done. Two years ago, we were in a situation where we had not a divided congress, but, you know, one political party that was able to do something called a reconciliation process. There were big packages that were moving. And so, those types of ideas become part of those large tax packages. Now, there is a divided government, so it is…well, it’s less likely that today, this proposal will become part of, you know, an end-of-year package. That doesn’t mean that this isn’t still a very large pay-for, to pay for other policy priorities. So, it’s our job and our member’s job to get on Capitol Hill to talk about 1031 exchanges to get ahead of where this will likely become a bigger issue down the line. It may not be today, but again, there are perennial issues in Congress and, you know, this is…most of our members and advisors and retail clients have used a 1031 exchange. Their relative or friend may have used it, but that doesn’t mean that policymakers have that same appreciation for 1031 exchanges.
Andy: Totally. And I mean, honestly, they’re trying to link it to carried interest in private equity. I’m like, that’s a category error. Like you are just simply…you know, Anya, you pointed out that most members of Congress have no background in real estate. That’s a basic misunderstanding of what the 1031 is and how it’s being used. And if you think about all of the people that are employed in the real estate industry directly and indirectly, and how much the 1031 has been on the books for, geez, I don’t know, a century, close to a century, maybe more than a century. So, I wanna…actually, I should honestly devote a whole episode just to that. So, I’m gonna move on now, but I’m gonna put a pin in that mentally, because I think that’s an important topic that we really need to get the word out on. And speaking of getting the word out, so Anya, you, the IPA, your members, you’re going to Capitol Hill for the first time in, this has been what? Three years to speak with the members of Congress. So, why is IPA Summit important, and what are you hoping to accomplish with this event?
Anya: It’s important that…you know, we are the only trade organization that brings our members to meet with their own delegates, their own members of Congress and staff on Capitol Hill to talk about alternative investments. The list of issues that we have that touch every single one of our members, both public, you know, publicly registered…firms that have publicly registered offerings, private offerings in real estate, in credit, in other real assets, to issues impacting our financial advisors, broker-dealers, investment advisors, to really nuance legal issues, it is…so again, on the sell side, on the buy side, there are just so many issues impacting alternative investments right now, getting up on Capitol Hill when, frankly, members of Congress, their senior staff haven’t had anyone in their offices.
You know, they’ve been having to operate virtually. So, being first in the door and covering things that are gonna be really relevant to our industry over the next couple years is critically important. Despite all the work that I do and my team does, and Doyle and his team working with the IPA, there is nothing more valuable than you who sits in the district of a member of Congress or in their state talking to them about an issue that is important to you. That is the most impactful conversation. And, you know, that’s not something I can replicate. So, we bring our members to meet with their own delegates in Congress. And, you know, another aspect of our event is that we bring our members together. We do these round-tables, it’s something new we’re doing this year to go over all of these issues as well, to say, how do we create a better operating environment for our members in the alternative investment industry, again, public, private, buy, sell-side. And so, are we honing in on the right issues? Are there really key, you know, technical things that we need to discuss? Are there business issues? And those end up translating into legislative topics, regulatory topics. So, there’s just a lot of reasons to be in Washington, D.C., as an organization that does a lot of advocacy and being a participant in the process.
Andy: A hundred percent. And one of the things I love about IPA and all the work that you do, you know, our industry, it’s interesting to me. There’s competition, you know, but it’s also very cooperative. And I love that members of the industry thinking long term and thinking about, you know, things like improving accessibility to real assets, to alternative investments, that helps clients, right? It helps everyday investors. And it helps really all participants in the industry. It’s a good outcome. It’s a win-win. But we have to be willing to do the work, to put in the time to go to IPA Summit, you know, to contact our representatives and to kind of think long term.
Doyle, my question to you, you know, given what Anya said, there are so many issues here, and IPA hasn’t been to Washington in three years now. How do you begin to kind of prioritize those? Because I’m thinking, I love the idea of like, the squeaky wheel gets the grease of, you know, a lot of these offices haven’t seen many visitors in person for a while, but at the same time, I’m thinking, well, I don’t want to mention like a hundred things because then they’re not gonna probably remember any of ’em. So, how do you prioritize that when you’re talking with members of Congress and their staffs?
Doyle: Sure. I think it’s coming on, Anya and I, our teams to sort of narrow those issues down and put ’em into, I always call ’em buckets, which is an unfortunate term, but I can’t come with a better one. You know, where we have like three buckets. One is sort of in the capital formation area, sort of what is it in the social securities laws that we’re most concerned about? We have a couple issues in there that we’re gonna try to talk to the members of Congress about that are in that area. We have a number of items in the tax, we’re just talking about 1031. We have FIRPTA Parity that we’re looking at, some things on business development company parity that we’ll talk to members of Congress about with regards to tax policy, on the sort of proactive side.
On the offensive side, it’s getting more access to alternative products through defined-benefit plans. So, you know, those people who put money into 401ks and IRAs would have an opportunity to direct their investment into alternative investments. So, we sort of put ’em into those buckets so that the members can understand them. And then we’ve got, obviously, some points underneath each one of those buckets we’re talking about specific issues. So again, it’s all about education and it’s all about starting to expose these members and their staff. So, when they run into a question about either of these products or about this subject matter, so if they’re in a financial services committee hearing and they hear about capital formation, they stop and think, oh yeah, my member from IPA came in and saw me a couple weeks ago all down there and asked them what they think about this proposal. That’s really the goal we’re trying to achieve, is build that relationship so that the member or the staff person recognizes like, I just spoke to that person. Let’s call and get their input on what they think of this idea. And we can do that by, you know, putting those ideas into sort of bite-size form, if you will, put ’em into those buckets and then be able to say, “Here’s a way to think about these issues when you think about alternative investments, here are the three areas that we’re most focused on.”
Andy: Yeah, that’s, I mean, just as a from a pure sales angle or relationship angle, if you can make someone’s life easier, and be collaborative and sort of build relationship equity, they’re much more likely to call you back. And, you know, that kind of brings up an interesting thing that’s been going on in my mind. You know, typically with investments or finance, you know, in politics you kind of think free markets, more libertarian, more republican. But I also think there’s another side to this, and the overall thrust of the industry, which is improving access, retail investors improving access for even non-accredited investors. So, you know, do you find that…you know, are members of both political parties, you know, friendly or willing to hear you out, or does it kind of skew one direction or the other? Doyle, I’ll start with you.
Doyle: You know, it’s really not a partisan issue, particularly. We’re very cognizant of trying to work with both sides of the aisle and make that outreach to make sure that we have good relationships on both sides of the aisle. It’s really about twofold. You know, members will approach it from, you know, a business standpoint, so we were talking about 1031 earlier. So, the economic development impacts that. The importance of 1031 on workforce housing is sort of a common issue that all members of Congress, they all live in a district where almost all of them have housing issues, particularly workforce housing and affordable housing. So, that’s a great way to start with them. And pretty much any member has this same concern. So, it’s finding that common concern across those parcel lines. You know, some of the leadership, you know, will take us one way, the Republican leadership, the house tends to be a little bit more pro-economic development, a little bit pro-capital formation. The Democratic leadership is as well, but they come at it from a more consumer protection perspective, an investor protection perspective. So, it’s up to us to try to explain why, as you said, Andy, these are important products to have access for people who are trying to save for their retirement and, you know, save for college educations and other financial goals.
Andy: Yeah, I understand. Anya, I guess in your experience, so like, let’s take something like the 1031 or some of these other issues. You know, in your experience talking with staffs, talking with members of Congress, are they genuinely more focused on long-term good policy versus, you know, optics? Or is it just impossible to tell, you know, when you’re educating them on these kinds of issues?
Anya: Yeah, you know, I think they’re probably a little bit focused on both. Everyone is focused on long-term good policy, for the most part. And there is some amount of optics in there. And it’s really understanding the member state and what their issues are that they’re really hyper-focused on. Are they from a big, you know, state with large metropolitan areas or a state with a lot of farming regions and sort of understanding, you know, where they’re starting at as a baseline. And, you know, I would say, just to react to what Doyle said, you know, every issue is a little bit different. He kind of bucketed ours, you know, we really focus on tax issues, Opportunity Zone extensions is something else on our radar. We focus on securities and capital markets issues, and there there’s a lot of regulatory issues weaved in. So, those can get a little bit more partisan sometimes, and then retirement issues. And it really depends what topic you’re focused on, and really that member of congress’ home state and their particular background, that’s very important. What did they do before becoming a member of Congress? And what is, you know, sort of their philosophy and life perspective, you know, that really makes a difference in how they’re gonna look at an issue.
Andy: Totally. You know, and again, from that relationship-building perspective, or I hate to say sales perspective, but, you know, just treating people as human beings, understanding where they’re coming from, understanding their point of view, I totally agree with lobbying, with policy, you have to understand a politician’s home state even to understand, you know, their incentives. You know, I think on the negative side, increasingly we’re seeing partisan members of Congress just vote almost in lockstep on almost every issue, regardless. So, I think, you know, just having a bit of optimism that, you know, maybe educating this member of Congress or their staff could maybe be the difference. Because some of these issues are not as inherently partisan. You know, and Anya, you kind of alluded to some of them are, you know, especially ones that get into the more regulatory aspects or consumer protection, but others like the 1031 exchange, I think anyone in any political party, if you kinda walk through how this affects that entire industry, I think you could very easily make a bipartisan case why it would simply be bad policy to, you know, severely limit it or to eliminate it.
I wanna make sure to leave a little time to discuss regulation. So, you know, we have a divided government and, you know, we’ve seen a lot of regulatory activity on the federal level, on the state level. So, Anya, you know, what do you expect to see next from the SEC or from state regulators, or what’s on your radar in terms of the regulatory environment?
Anya: So, that’s a great question. With so much gridlock sometimes in Congress, you get a lot more activity pushed down to federal and state regulators. There is an incredible volume of regulatory activity we saw over the last year. In the first three months of SEC chair Gensler, he put out more rulemaking than during the Dodd-Frank crisis. And, you know, did we have a crisis? No. But in fact, if you look at the 87-year history of the SEC, it is more a heavier amount of rulemaking than we have ever seen in its history. And also, shorter comment period. So, normally you may have a 90-day comment period, there were 30-day comment periods, 60-day comment periods. So, we’re in a situation now where we’re expecting the SEC to take all of those proposals over the last year and move them to a final proposal and review and look at all of the comments that came in. And there’s a lot of topics on their agenda. Everything from digital assets, cryptocurrency, private funds, ESG, their climate change proposal was over 500 pages.
Andy: Now, Anya, do they…I gotta interrupt there. Do they actually look at the comment period? Because, you know, I’m not involved in this stuff at the level like you guys are. When I read that there’s a comment period, I just roll my eyes and I assume someone’s printing out the comments, giving them to the regulators, and they’re like crumpling them up and tossing them in the waste basket. Do you think they actually read those and integrate that feedback?
Anya: They do. They’re subject to the Administrative Procedures Act, the APA. And they have a process that they have to file, and I believe they, you know, create different matrices because again, you know, there was a ton of comment letters that came in for the climate change proposal. So, yes, they do have…they have an economic analysis, cost-benefit analysis they have to go through. So, there’s a lot involved in the rulemaking process, which is a good thing. And something, you know, that’s important for the public and for investors to see. But having said that, you know, they have a large staff, but they still have the staff that they had, and they had many rule proposals over last year. And we know that, you know, if you can look at the short-term agenda for the SEC, there’s new proposals.
There’s reviewing the accredited investor definition and private placement offering exemptions. And those had a timeline of April of this year. They’re still in a very aggressive and very fast-paced process. So, that will be, you know, definitely something for our industry to stay active on and watch. We have a new SEC commissioner, Commissioner Mark Uyeda, who was appointed in April of 2022 coming to speak to our audience at IPA Summit. That’s gonna be a great time to get his perspective and see where all of these topics are on the regulatory agenda, you know, what his personal view is on where things should go. And, you know, we also see very active state regulators. NASAA is the organization that represents state regulators. Melanie Lubin, who is the immediate past president, is coming to our conference and they have put out…you know, they put out the NASAA REIT proposal. We expect them to put out future proposals on other state-regulated products.
They’ve put out corporation finance proposals. And they’re still in the process of their own state regulation best interest survey analysis, which is, you know, looking at sort of fiduciary like standards of conduct. So, it’s such a heavy and such a fast-paced environment for state regulators. We’re having them come speak, someone from the Department of Labor, you know, they’ve got an ESG proposal, we expect the Department of Labor to have a fiduciary proposal over the next year. So, you know…
Andy: Can I ask about that? I’m sorry to interrupt. You know, all of these things are important from a policy perspective. I’m more like a retail investor or consumer. I mean, I cover the industry on the podcast, but the issues that stick out to me are like the ones that I see on the front page of the Wall Street Journal, right? So, like the 1031, but that other, the fiduciary duty with the ESG stuff, I guess this is a question for either of you. I’m a little confused, do regulators have the ability to sort of unilaterally redefine what a fiduciary duty is? Because I would just sort of assume that that would be set in law by Congress and defined by congress, by law what a fiduciary duty is. It almost seems to me like the term is being redefined in real time by potentially unelected people. Can either of you explain to me how that works or why that’s even a discussion, what a fiduciary duty is?
Doyle: Well, sure. I’m happy to take the first shot at it.
Andy: Yeah, please. So…
Doyle: Congress delegates its authority to the administrative agencies to implement. So, they’ll come along and say, everybody has a…you know, if you deal on this in the ERISA world, you’ve got the fiduciary duty to those investors who invest through their pension plans. They leave it to the Department of Labor to define all those terms. So, it really is up to the Department of Labor to define what does fiduciary mean and who does that fiduciary duty apply to? And that’s…
Andy: Sorry. Is that only then in the Department of Labor, or is it then apply to the whole financial services industry overall?
Doyle: Well, then what will happen is once the Department of Labor comes along and makes those decisions, then the other regulatory agencies, the SEC, and FINRA pick up that decision and start to move forward with it. And you see it coming into the states. So, you know, it all sort of starts with fiduciary duty, particularly starts at the Department of Labor as they define it, and then find how it impacts everybody.
Andy: I get it. So, Congress has sort of delegated that to this agency, and then it becomes regulatory law. I gotta say, I think they’re playing with a hand grenade by trying to redefine that term because it underpins so many relationships in the financial services industry, even the relationship between a client and an advisor, and the client trusting that their advisor has their best interests at heart. Anya, with the members of IPA, is there any agreement on this? I mean, because I do sense that this is now a very partisan issue. I mean, I’m happy to weigh in, but I don’t necessarily need to. I’m more curious in general with the membership. Is there agreement on that or is there difference?
Anya: No, I mean, I think our agreement is…our membership is very aligned on what standard…I would call it a standard of conduct. So, the SEC, the Department of Labor, they both have oversight into the financial intermediary space. So, from a Department of Labor standpoint, it’s, you know, ERISA fiduciaries, the SEC has oversight over registered investment advisors and broker-dealers. So, it’s really defining what the standard of conduct is and what do we call it? The SEC had…they finalized Regulation Best Interest over the last several years, which is a standard of conduct, a heightened standard of conduct for broker-dealers. And there’s disclosure requirements for that group for registered investment advisors. And the Department of Labor back in 2016 had their fiduciary proposal, which the Fifth Circuit ultimately nullified.
So, what we expect is a new standard of conduct from the Department of Labor. You know, from our perspective, you know, certainly, our members believe that FINRA has done an excellent job of regulating the standards and the requirements for the broker-dealer industry. And our concern is, again, the unintended consequences, a slippery slope of, you know, what would too much regulation or regulation that’s not done in the right way could have an effect of limiting access to advice and to working with a, whether from a transactional or commission based, you know, to a flat fee basis advisor. And so, it’s our job to make sure that there’s not those types of unintended consequences both on the, you know, selling side, but also what the retail investor is looking to purchase. So, ultimately, it doesn’t become unsuitable or, you know, against a fiduciary duty or the…
Andy: Totally, yeah.
Anya: …best interest to sell certain types of products.
Andy: Totally. I get it. And I think one theme throughout this episode that we’ve been talking about is educating folks about unintended consequences. So, you know, it’s because there are valid ways to see different political issues, policy issues, regulatory issues, you know, valid points of view that can be different. But with some of these issues, it appears to me that, you know, people need to actually think them through. And if this is implemented, what then happens? And to me, I think this is probably again, another whole episode, but if we redefine what a fiduciary duty is, then as a retail investor, now I’m going, “Okay, well, I guess I don’t want a fiduciary duty, I want something else.” Because they redefined fiduciary duty to mean something different than what I believe it means. And so, again, you know, different points of view, but I think people need to understand, when you put a word like that or a phrase like that in the news cycle and you politicize it, you know, now you risk collateral damage, right, beyond even that original issue that you were hoping to address.
So, I just have to say, you know, from my own personal perspective, I appreciate so much what IPA does and all of the members that participate in the IPA, because again, I think, you know, the day-to-day of launching products and managing assets and doing business, I love that stuff. I’m a businessman, you know, that’s all very exciting. But the ability to think long term and how much investor outcomes have been improved in the past 20 or 30 years with the evolution of the Alts industry, I mean, it’s really amazing how much more accessible alternatives are than they were two or three decades ago. So, I want to thank IPA and you two for what you do personally, but I also want to thank all the members of IPA.
I know we have members who listen to the show, so thank you for, you know, being members. Thank you for participating, renewing your membership. I really do think it’s tremendously important. So, that being said, I know we’re almost out of time, but Anya, I want to give you a chance to sort of plug IPA, let us know where our audience of not only investors, but also asset managers and financial professionals can learn more, can get involved, maybe go to the summit. What are the different resources and events that you have for them?
Anya: Thank you, Andy. I am very excited about IPA Summit coming up at the end of April, the 26th to the 28th. We have all of our regulators for the alternative assets industry coming to the conference, speaking to our members. We have round-tables. We’ll be on Capitol Hill. So, I encourage everyone to register and come to that event. It is wide open to members and non-members, frankly. And we have other events during the year. We have a public markets conference, a private markets conference, and then our annual IPAVision conference in September, which is a huge event for our industry. I also encourage members to get involved with the IPA, you know, we are the voice for you, not only in Capitol Hill, but for the business and the industry, and join, you know, our different working groups and our committees and really get involved in any way you can, down to, frankly the retail investor. It is about making sure…our mission is to make sure that there’s the same access for retail investors that institutional investors have. So, that is the core of what we do and why we exist. So, I encourage anyone to come to summit and to get involved.
Andy: Absolutely. And again, I just have to applaud big picture, zooming out, you know, aside from my little panic attack about 1031s, it’s important to step back and just applaud the big picture. How much progress has been made in the past 20 to 30 years, improving accessibility, improving investor outcomes. And I think a big part of that is due to the IPA, as well as, you know, efforts by your members. So, Anya and Doyle, thanks so much for sharing your knowledge. I’ll be sure to link to your websites, the upcoming events, maybe this news story about the 1031. I’ll put all that in the show notes. But I just wanna thank you again for coming on the show today.
Doyle: Thank you very much.
Anya: Thanks, Andy. Great to be here.