WASHINGTON ― House and Senate committees will consider an obscure bill called the “Fair Access to Investment Research Act” on Thursday. It will not be a major media event. The bill, which will likely sail through Congress, will not cause a new financial crisis, bar millions from accessing health insurance or undermine any foreign policy alliances. But it will help one company — Bank of America — make money by avoiding lawsuits.
Bank of America is the only corporation that has lobbied on the bill, according to the federal lobbying disclosure database.
“It’s all Bank of America,” notes one Democratic aide. “Nobody else has come in to talk about this.”
Rest assured, distressed citizens: Even in an era of legislative chaos and political mayhem, Congress is still finding time to deliver detailed, targeted favors to corporate interests. Things are basically back to normal.
Brokerage firms like BofA ― which declined to comment for this story ― make money by recommending and selling securities to clients. But many of them also issue research reports on various companies and investments. Research reports on traditional stocks are currently protected against lawsuits for botching facts or omitting important information. The bill BofA is pushing would extend those protections to reports on investments known as exchange-traded funds, or ETFs. But the way the bill is written would shield significant conflicts of interest in the ETF world from a host of lawsuits, for no apparent reason.
ETFs purchase baskets of assets and then sell ownership shares to investors, who can buy and sell those shares on an exchange like ordinary stocks. ETFs that track indexes, such as the S&P 500, have been around since the 1990s. But since 2008, a Securities and Exchange Commission rule has fostered the proliferation of a host of riskier, more complex ETFs, many of which carry high fees and are unsuitable for a large swath of the investing public.
Outside advisers to the ETF pick the actual assets in the fund, and these advisers ― typically brokers ― could easily issue research reports on ETFs they advise, creating a clear conflict of interest. As it’s currently written, the Fair Access to Investment Research Act would make it harder to sue a company when it issues bogus research reports during the launch of an ETF that it manages.
And a good ranking from a supposedly objective research report can be a useful tool for salespeople trying to pitch those investments. In the early 2000s, then-New York Attorney General Eliot Spitzer made his political career by nailing big banks for giving high marks to stocks they knew to be lousy because they knew that those good grades would help their brokers foist bad stocks onto misled buyers.
There aren’t many big banks currently publishing ETF research, but they do exist. Morgan Stanley’s wealth management division publishes ETF research despite the legal liability involved, relying on the radical strategy of not writing dodgy reports.
BofA is getting help in its quest from two lobbying front-groups for big corporations: the Securities Industry and Financial Markets Association and the U.S. Chamber of Commerce, which have also lobbied for the bill. Bank of America is a member of SIFMA. The chamber does not publicly disclose its members, but BofA is widely believed to be a member of the chamber, which has promoted BofA in various ways.
There will be no financial apocalypse if Bank of America gets its way on the bill in Washington. And it probably will get its way. Similar legislation passed the House last year by a vote of 411 to 6 but was stymied in the Senate. With Republicans in control of both chambers of Congress and the White House, there’s very little Democrats can do this time around to stop a bill that amounts to a nice perk for a big bank.
But even if Democrats do stop it ― Sen. Elizabeth Warren (D-Mass.) has filed an amendment that would eliminate one of the most glaring problems with the bill ― the fact that a favor for Bank of America is the source of bipartisan cooperation on Capitol Hill speaks volumes about congressional priorities.