Now that the dust has finally settled on the 2024 election, we can turn our attention to its expected impact on the investment management industry.  One of the most impactful expected changes is new leadership at the SEC.  President Trump has promised to “fire” current SEC chair Gary Gensler on “day one” of his presidency even though Gensler’s Senate-approved term runs to 2026.  New SEC leadership still seems likely, though, since its senior officials customarily resign when a new administration is elected.  Gensler himself has said that “traditionally, presidents get to decide who chairs the SEC, and that’s a good part of democracy.”

The most profound impact of Gensler’s expected departure is likely a reversal of his administration’s ESG and crypto initiatives.  Gensler has gone after more crypto-related targets than his Trump-appointed predecessor, and the recent bitcoin rally suggests the next administration will be more friendly towards digital assets.  Gensler also pressed for several ESG initiatives, most notably a 534-page proposal that would force publicly traded companies to report information on greenhouse gas emissions and risks related to climate change.  Legal observers expect this proposal to be scrapped under the new administration, which will likely be less concerned with ESG and climate issues.

Changes to the SEC’s Division of Investment Management (the “IM Division”), which directly regulates the RIA industry, are less likely under the new administration since, historically, such positions do not have the election-related turnover applicable to SEC leadership.  It is, therefore, more likely that the current IM Division Director, Natasha Greiner, will retain her position as Acting Chair in 2025.

Since immediate changes to the IM Division are unlikely, we can look to the department’s actions under the first Trump presidency for insights on what its initiatives might look like after 2025.  Global law firm Ropes & Gray notes that the IM Division finalized 70 regulatory initiatives affecting investment companies and investment advisers under Trump’s first term, including:

• Investment Company Act of 1940 (“1940 Act”) rules 2a-5 (relating to fair valuation of assets by investment companies), 6c-11 (relating to the operation of certain exchange-traded funds without the need for an exemptive application), 12d1-4 (rules relating to registered “funds of funds”), and 18f-4 (relating to the use of derivatives and other senior securities by registered investment companies)
• Reforms of the marketing rule under the Investment Advisers Act of 1940 (the “Advisers Act”)
• Rules relating to securities offering reforms for business development companies (“BDCs”)
• Rules relating to the provision of proxy advice (some of which were later rescinded or invalidated through litigation)
• Adoption of Regulation Best Interest and promulgation of the SEC’s interpretation of the fiduciary duty owed by an investment adviser to its clients under Section 206 of the Advisers Act

On balance, many of these initiatives were intended to streamline the SEC’s regulations, which were relatively deregulatory in nature.  It’s reasonable to assume that this trend would continue under a new SEC chair and possibly a new IM Division Director under the President-elect’s second term.  The recently approved Fiduciary Rule, which provides that a broader array of individuals would qualify as investment advice fiduciaries under ERISA, would likely get unwound, and the prior five-part test on who qualifies as a fiduciary could be reinstated under the second Trump administration.  This reversion could improve the competitive positioning of financial advisors and RIA firms but could also limit their pool of prospective FA recruits to serve new and existing clients.

It’s difficult to say how the market is digesting these prospective changes in the RIA industry.  Our index of publicly traded investment management firms is up about 4% since the election, but that’s likely because the S&P 500 is up that much, and these companies are mostly invested in public equities.  Deregulation could help, but RIAs aren’t regulated as strictly as other sectors of the financial services industry so this impact could be somewhat muted.  The biggest change could be more crypto (and less ESG) investment products, though it could take some time for many institutional investors to become comfortable with a relatively new asset class.  The coming weeks will likely determine if the current SEC chairman is stepping down and who Trump’s appointee might be, so stay tuned.

About Mercer Capital

We are a valuation firm that is organized according to industry specialization.  Our Investment Management Team provides valuation, transaction, litigation, and consulting services to a client base consisting of asset managers, RIAs, trust companies, broker-dealers, PE firms, and alternative managers.