Fund Managers Take Aim At STOCK Act


A provision inserted by Senator Charles Grassley (R-Iowa) in the STOCK Act last Thursday has many political strategists and brokerage firms on edge.

Insiders say the legislation seems to aim at hedge fund managers but would also hamper investment managers running public pension funds, mutual funds and trust funds.

The bill passed 60-39 in the Senate and as written—according to analysts and brokerage officials—all Certified Financial Planners would have to file as a lobbyist if they have any communication with a Hill Staffer or Congressional Member.

"The language adopted in the Senate could seriously cut off dialogue between investors, members, and Hill staff writ large," warns Charles Gabriel, managing director or Capital Alpha Partners. "In our view to the detriment of American retirees, who could see their savings suffer as a result.”

According to TD Ameritrade, there are currently 134,000 CFP professionals worldwide, with 62,000 in the United States and that number is presently increasing at 10 percent a year.

"We Certified Financial Planners have a fiduciary responsibility to their clients and we have a bill of ethics we abide by. To register as a lobbyist is non-senesical," explained Mike Kresh, Managing Member of Creative Wealthy Management and a CFP. "Just because you have communication with a Hill staffer doesn't mean you are trying to sway influence on having a bill passed or not."

In a passionate floor explanation, Senator Grassley (R-IA) explained the reason for his amendment.

“My amendment takes intelligence professionals and has them register just like every lobbyist … so that it is totally transparent, so that when these people come around to get information from us that they sell to hedge funds, you will know who they are,” Grassley said.

Senate Homeland Security and Government Oversight Committee Chairman Joe Lieberman (I-CT) argued the "Political Intelligence" umbrella is too broad. He urged the Senate to have more time to review the bill.

“We are ultimately dealing with first amendment rights here," Lieberman said. The he also pledged to hold in coming weeks a hearing on this very issue.

Grassley responded by urging his fellow Senators: "Don't vote for Wall Street, vote for my amendment." Which got a resounding chuckle.

The ambiguity Senator Lieberman mentioned on the floor is the main reason for concern among fund managers, according to Gabriel.

"It could also hurt small and independent firms like us, that do little more than write predictive research reports, analyze and contextualize events in D.C., and host meetings and conference calls to educate mutual fund companies, pension funds and other public and private institutional investors," Gabriel explained. "Ironically, firms like ours were held up to the light as good actors, and part of the solution, in the wake of the Wall Street research scandal of a decade ago. Now we're at risk of being burdened with new and costly disclosures that might deter members or staff from talking with us, or our investor clients from using our services. All without a dedicated hearing in either chamber and without the benefit of the GAO study contemplated in the committee-passed Senate bill."

The House is set to take up the STOCK Act later this week. House insiders say in all likelihood the Senate bill will get watered down by pro-business members in the House. Wall Street sources say they're being told by that the registration requirement won't be taken out of the Stock Act.

Some fund managers are outraged that they’ve been roped into the issue of congressional insider trading.

"It's ok for a member of Congress to cheat the system themselves but targeting a group of individuals who are advising Main Street Americans with their pensions and 401K's is ok?" said Kresh. "It doesn't make sense."

"Members can perhaps be forgiven for rushing to judgment with an election-year fix for inadequacies perceived in the application of insider trading statutes to Congress, punctuated, as they have been, by embarrassing revelations re key members' opportunistic investing," said Gabriel. "But most worrisomely of all, the STOCK Act's prescriptions would arguably hurt the exact middle class Americans whom it is designed to protect." Body of the text here

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Lori Ann is Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."