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High stakes in midterm elections

It’s a good thing Lee Baker is into politics. He and his fellow Georgians are getting their fill this fall.

They’re living in one of the states that could determine control of the Senate. In case they weren’t aware of that, they’re reminded every day by the deluge of political ads touting or denigrating the candidates, incumbent Democratic Sen. Raphael Warnock and Republican challenger Herschel Walker.

Baker, chief executive at Apex Financial Services in Atlanta, said there have been “an absolute ton” of TV and online ads about the pivotal Senate race between Warnock, a former minister at the church that Martin Luther King Jr. once led, and Walker, a former star running back at the University of Georgia.

Whenever he turns on his TV or glances at his phone, Baker is likely to hear about the Senate contest or other high-profile Georgia races.

“You can’t escape it,” said Baker, who’s also a volunteer regional director for AARP. “They’re doing as much to get my attention as investment companies and financial planning software companies.”

Georgia was the epicenter of the political world in early 2021 when Warnock and fellow Democratic Sen. Jon Ossoff won run-off elections to knot the Senate in a 50-50 standoff. Democrats enjoy a Senate majority thanks to the tie-breaking vote of Vice President Kamala Harris. The party’s hold on the House is tenuous, too, as it clings to a five-seat advantage.

Whether Warnock can win a full term for the seat he obtained in a special election last year will go a long way in deciding whether Democrats can maintain Senate power. That has put Georgia right back in the political spotlight as it heads for a photo finish in the Warnock-Walker tilt.

“They’re all really tight,” Baker said of Georgia contests. “I don’t expect to see anything different this time around.”

Another battleground state is Arizona, also host to a key Senate election as well as several tight state-level races. Donald Jones, founder and partner at Fiduciary Wise, is disappointed by the political ads bombarding him.

“On both sides, the commercials are not accurate,” Jones said.


The stakes are high for advisers because the midterm elections could affect how Securities and Exchange Commission Chairman Gary Gensler carries out an ambitious rulemaking agenda that includes many proposals affecting them, such as oversight of environmental, social and governance investing, cybersecurity and private funds.

The likelihood of Republicans taking control of the House has grown from a prediction to conventional wisdom to a near certainty, thanks to structural advantages the party achieved in redistricting after the 2020 census as well as high inflation and President Biden’s low approval rating.

But Democrats are not giving up on the chamber. Their base of voters has been energized by the Supreme Court decision earlier this year that ended the federal right to an abortion.

“It’s not a foregone conclusion” that Republicans will win the House, Rep. Jim Himes, D-Conn., said on the sidelines of an Investment Adviser Association conference in Washington in late September. “The tide is turning in our favor. I don’t know if it’s enough to retain the majority.”

Paul Auslander, director of financial planning at ProVise Management Group in Clearwater, Florida, said the debate over reproductive rights has increased the likelihood that women and college students participate in the election. Most Democratic ads in Florida House and Senate races center on the topic.

“The wild card is the abortion issue,” said Auslander, who is involved in Florida Democratic politics. “It brings out the vote everyone is worried [won’t] come out.”

The Warnock-Walker race is an example of how tension is spiking over Senate control while abortion is playing a central role. Walker has become embroiled in a controversy centering on allegations that he encouraged and financed a former girlfriend’s abortion. He denies the claim.

There is widespread agreement that the Senate is a toss-up. With Republicans likely to control the House, the prospect of split control of Capitol Hill is growing. Even if they lose the Senate, Democrats would have a large enough minority to sustain a filibuster and stop most major legislation.

What’s likely to emerge in a Congress with at least partial GOP control “is going to be a lot of theater and oversight more than actual policy,” said Michael Canning, principal at The LXR Group, a government relations firm.


Republican leadership of the House could make life much more difficult for Gensler, who was appointed by President Biden and heads a commission with a 3-2 Democratic majority.

Republicans are likely to push Gensler to curb his aggressive agenda, especially on ESG investing, and to threaten funding for the agency. They are eager to haul him up to Capitol Hill for tough — perhaps brutal — hearings before the House Financial Services Committee.

Gensler, an experienced regulator and savvy politician, is taking the potentially stormy atmosphere in stride. Following a Senate Banking Committee hearing in September, he pointed out that he has served in three presidential administrations and dealt with Democratic and Republican lawmakers on a number of issues, including the Sarbanes-Oxley Act on company auditing and disclosure.

“I’ve worked with members of the House and Senate across the aisles,” Gensler told reporters. “I’ve worked with every configuration. That’s part of what makes our democracy so vibrant.”

A former chairman of the Commodity Futures Trading Commission, he added: “It’s not my first rodeo.”

Gensler is better prepared than most SEC leaders to take flak from Congress, but what he gets from a fired-up GOP House majority could be relentless. How effective Republicans can be in reining him in depends on their margin of control.

Republicans are certain to try to reduce SEC funding through so-called riders to appropriations bills. Riders are provisions that prohibit the SEC from spending money on certain items, such as implementing ESG rules.

If the GOP has a House advantage of 25 or more, it could have significant leverage in talks with the White House over the federal budget. If an agreement is not reached, a government shutdown looms. If the House GOP margin is 10 to 20, the party will bring less power to the table.

“A small majority is enough to potentially force the issue,” said Jason Rosenstock, a partner at Thorn Run Partners, a government relations consulting firm. “But the historical precedent is a lot of these riders tend to fail during negotiations. There are probably enough Democrats to keep the government open at the end of the day.”

That may not be the case if Democrats also lose the Senate.

“If Republicans control the Senate, it’s a very different dynamic,” Canning said. “If the Senate flips, too, then Republicans can present the president with a take-it-or-leave-it offer. I could absolutely see [ESG] being something Republicans would fight to stop through a rider in an omnibus [spending bill].”

Beyond the budget, Republicans can put pressure on Gensler by frequently grilling him about his rulemaking priorities in hearings. It could be a form of running out the clock on the SEC.

“If he spends a lot of time on Capitol Hill, that’s time he’s not spending fully adopting rules,” Mara Shreck, managing director for regulatory affairs at J.P. Morgan Investment Management, said at the IAA conference. “He gets to a certain point, especially with the 2024 election [pending], where it gets harder to do rules … when you have the possibility of rules being overturned” by the next Congress in 2025.

Although Republicans can huff and puff, they can’t directly blow down the SEC’s regulatory house. It is an independent agency and can proceed with rules as long as the three-person Democratic majority votes to do so.

“Gensler still has a two-year runway to do what he wants to do,” Canning said.

The Republicans’ strongest punch is likely to be rhetorical.

“It’s almost tying it into a narrative, if you will, that is more political, looking down the line to 2024 as to why Gensler should not be in that place,” Langston Emerson, a partner at Mindset, a government relations firm, said at the IAA Forum.


Control of Congress also could influence other adviser issues, such as investment advice standards and tax reform. If Democrats maintain their edge, they would be more sympathetic to fiduciary advice and may revive proposals to raise taxes on the wealthy. Republicans have already made clear they’ll try to make permanent 2017 tax cuts that will sunset in a few years.

“If you’re an adviser pushing for a global fiduciary standard, you prefer Democratic control,” Baker said. “If your leaning is more toward tax-friendly [policies], you’re probably looking for Republican control.”

Which way Congress heads could come down to a couple of Senate races that determine the margin of control in the chamber.

“Having a senator or two to lose [and still prevail on votes] can make all the difference in the world,” Canning said.

That will keep the focus on places like Georgia — not just in this year’s midterm elections but also in the 2024 cycle when the parties will battle to flip the House and Senate again.

“We’ll get a few months off,” from electioneering after the election, Baker said. “But by the time April 1 rolls around, it will crank up again.”

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