Amending the Investment Advisers Act of 1940 to Codify Certain Securities and Exchange Commission No-Action Letters That Exclude Brokers and Dealers Compensated for Certain Research Services From the Definition of Investment Adviser

Floor Speech

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Mr. SHERMAN. Madam Speaker, I yield myself such time as I may consume.

I rise in support of H.R. 2622, sponsored by the gentleman from Texas. To put this in context, we have one regulatory scheme to deal with broker-dealers and another to deal with registered investment advisers.

Traditionally in the United States, a broker-dealer is only registered as a broker-dealer, subject to that regulatory scheme, and the broker-dealer not only executes transactions but also gives advice and does research.

Our friends in Europe have required that under certain circumstances, a broker-dealer must charge separately for the research and advice on the one hand and for the execution of the transaction on the other.

Following that pattern would ordinarily cause that broker-dealer to be subject to that second regulatory scheme, the regulatory scheme for registered investment advisers. It is appropriate that since 2017 the SEC has had a no-action letter, saying that if broker-dealers under these circumstances do not register as investment advisers, the staff of the SEC will recommend to the board that it take no action, no enforcement action. Basically, it is a pass for the broker-dealer to follow the European rules but not register as a registered investment adviser, continuing to be subject to regulation only as a broker- dealer.

Now, this bill in its original form would have made this no-action letter, this pass permanent, but several investor groups expressed concerns about that original version of the bill. For example, a joint letter from the Council of Institutional Investors, the CFA Institute, and others argued against taking that approach without further thought.

During the committee markup, the gentleman from New Jersey (Mr. Gottheimer) offered an amendment to change this bill from the permanent exemption to instead only relief for 6 months. It requires the SEC to study the impact of letting the no-action letter expire, something that the Financial Services Committee is very interested in understanding.

The bill would also review other tangential issues, including conflicts of interest and the provision of financial services by middle-market financial intermediaries.

With Mr. Gottheimer's amendment adopted, I think this bill is a reasonable compromise, and I urge all of my colleagues to support the bill.

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Mr. SHERMAN. Madam Speaker, I yield myself the balance of my time to close.

There is an image in the country that nothing is getting done in Washington, that we are tied up in partisan knots. As the gentleman from Texas points out, this bill passed our committee 45-2. Congress continues to function, although it is much more exciting for the press to cover the fights than the progress.

The amended version of H.R. 2622 being considered on the floor today represents a bipartisan compromise. It gives the SEC the time to address potential concerns laid out by stockholders related to the no- action letter for broker-dealers that offer research services from needing to register as investment advisers.

It is a well-thought-out response to our current situation. I urge my colleagues to support this bill and yield back the balance of my time.

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