Inside the Litigation Lion

Obama's Reelection - Buckle Up Broker

By Richard A. Roth and Craig Tepper

In the wake of President Obama’s recent reelection, the nation is certain to face a bevy of changes. In the months leading up to the election, the President’s administration, in a customary reelection strategy, delayed the implementation and commencement of cumbersome regulations, in order to avoid losing votes before election day. Now that the reelection was successful, the regulations are sure to begin flowing forthwith. While many industries will benefit from the impending changes, registered representatives and small broker/dealers are certain to get the “short end of the stick,” and be negatively impacted.

A main reason to anticipate this impending onslaught of regulation is that it is likely to be a continuation of the massive changes seen during Obama’s first term. As I (Richard Roth) stated recently in this publication, the Obama victory will bring “continuing and more regulations.”  There will be bigger, stronger regulations “and in the post-Madoff era, the pendulum will have swung too far.” 

One of the most serious industries hit by this wrecking ball is the financial services industry. The Obama administration is certain to pick up where it left off with the Department of Labor’s proposed rule to expand the definition of fiduciary.  If this proposal passes, financial advisors will no longer receive commission-based compensation for advice given to those under the Employment Retirement Income Security Act (“ERISA”). This would significantly hinder the financial advisory industry, by cutting into a major incentive for aiding and educating those under ERISA plans. Aside from this proposed rule, the Obama administration will hold the financial advisory industry to an abnormally high standard of rigidity, which will cause registered reps to think twice about taking business that they would ordinarily have taken before, potentially cutting off a formerly steady stream of income in the process.

In addition, the Obama reelection means the continuation of regulations stemming from the Dodd-Frank Act, which has wreaked havoc on the traditional infrastructure of financial institutions, and, in the process, unjustly disarmed them of certain decision-making power that they have always retained.  For example, the Dodd-Frank Act has spawned the proposed Volker Rule (which the Obama administration is a big proponent of), which will put a significant hindrance on the types of financial transactions and trades that financial institutions can make with their own money. If a proposed trade shows any signs of risk, the Volker Rule will allow the SEC to stop it in its tracks.

The Dodd-Frank Act also made it significantly easier for whistleblower claims to be filed. As we previously wrote for this publication, by lowering the barrier for whistleblowers to make claims against their employers in the financial institution, it has caused a windfall of claims filed with SEC, only a fraction of which prove fruitful. Due to Obama’s reelection, these whistleblower claims will continue to leave employers in the financial industry walking on eggshells while in constant fear that the SEC will be coming after them.

Unfortunately, Obama is likely to use the impending “fiscal cliff” as an excuse and justification for continuing to push hard for these regulations. This “cliff” in question is set to take effect on January 1st, when the tax-cuts imposed during the George W. Bush administration are set to expire. Obama’s administration will be imposing a tax reform requiring the higher expenditure of taxes on individuals who have higher average incomes. Since another Madoff-like debacle would throw an enormous wrench in Obama’s plans, he will continue to push forth with and impose these regulations, despite the extremely negative impact they have had, and will continue to have, on registered reps and the financial industry as a whole. 

In the end, the financial advisor is in for a roller coaster ride.


Richard Roth is the founder and president of The Roth Law Firm, PLLC, a boutique litigation firm that concentrates in litigating securities arbitrations and SEC/FINRA enforcement actions.

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An inside view of trends in SEC/FINRA regulatory and compliance issues and how it affects individual financial advisors and their firms.

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Richard Roth

Richard Roth is the founder and president of The Roth Law Firm, PLLC, a boutique litigation firm that concentrates in litigating securities arbitrations and SEC/FINRA enforcement actions. He...
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