By Kenneth Corbin
BARRONS
Dec. 23, 2021 2:51 pm ET
The Securities and Exchange Commission has tapped a law professor and vocal critic of the mutual fund industry to head up the Division of Investment Management, the unit of the agency that develops policy governing the advisor and fund industries.
William Birdthistle will join the SEC from the Chicago-Kent College of Law, where his research has focused on securities regulation and investment funds, which figures to be an active area of policymaking under the agenda of Chairman Gary Gensler.
Birdthistle is a prominent critic of the fund sector, arguing that the industry is riddled with bad behavior among asset managers. As the head of the division that develops policy in the fund and advisor space, he will now have a chance to put his ideas into regulatory initiatives.
“Professor Birdthistle will bring remarkable expertise in investment funds to the SEC,” Gensler says in a statement.
William Birdthistle at the law library at Chicago-Kent College of Law.
Dec. 23, 2021 2:51 pm ET
The Securities and Exchange Commission has tapped a law professor and vocal critic of the mutual fund industry to head up the Division of Investment Management, the unit of the agency that develops policy governing the advisor and fund industries.
William Birdthistle will join the SEC from the Chicago-Kent College of Law, where his research has focused on securities regulation and investment funds, which figures to be an active area of policymaking under the agenda of Chairman Gary Gensler.
Birdthistle is a prominent critic of the fund sector, arguing that the industry is riddled with bad behavior among asset managers. As the head of the division that develops policy in the fund and advisor space, he will now have a chance to put his ideas into regulatory initiatives.
“Professor Birdthistle will bring remarkable expertise in investment funds to the SEC,” Gensler says in a statement.
William Birdthistle at the law library at Chicago-Kent College of Law.
Illinois Institute of Technology
“The Division of Investment Management develops regulatory policies to oversee investment companies and investment advisors so that American investors can confidently save to buy homes, pay for college, or plan for retirement,” Gensler says. “I look forward to working closely with William to execute our mission.”
Birdthistle did not immediately respond to a request for comment on his priorities at the SEC. In a statement, he lauds the investment management unit’s “exceptional reputation for protecting investors in funds and the asset management arena,” and says he is eager to work with the chairman and staff “to help investors and others.”
As author of the 2016 book Empire of the Fund: The Way We Save Now, Birdthistle argues that Americans saving for retirement through fund-heavy 401(k) plans and IRAs are vulnerable to “the built-in flaws, perverse incentives, and litany of scandals that have bedeviled mutual funds,” according to a synopsis of the book.
“Though Americans often hear of the importance of low fees in fund investing, few are aware of the panoply of ways that some financial advisors have illegally diverted money out of mutual funds: from abetting hedge funds in trading after the legal deadline, to inflating the assets on which they are paid a percentage, to paying kickbacks for brokers to sell their funds,” the synopsis says.
Birdthistle joins the commission at a time when the chairman has laid out an ambitious regulatory agenda, and brought in staffers like Barbara Roper, a leading advocate for stricter investor protections, that signal a pivot toward a more muscular regulatory regime that has some industry leaders worried. Writing this week in Barron’s, Baird Vice Chairman John Taft warned that the industry is facing “the single most aggressive regulatory push we’ve seen from the SEC in decades.”
The addition of Birdthistle to the division of the SEC overseeing funds and advisors won’t likely allay any of those concerns.
“One would expect that he will bring a very strong pro-investor bias to the SEC Division of Investment Management, with a particular focus on transparency,” Bill Singer, a veteran securities attorney and the author of the Broke and Broker blog, says in an email to Barron’s Advisor.
“My expectation is that he will push for more clarity as to fees and will certainly seek to discourage the conflicts inherent in the ’40 Act community that are nurtured by the overlap of mutual funds, investment advisors, and brokerage firms,” Singer said, referring the 1940 Investment Advisers Act and Investment Company Act, the foundational statutes for regulation of advisors and fund companies.
Duane Thompson, president of the consultancy Potomac Strategies, anticipates that Birdthistle could advance the commission’s efforts to crack down on funds and advisors that advertise ESG investments, products that purport to make commitments around environmental, social, and governance practices. That could include ensuring that an advisor’s ESG disclosures on Form ADV are in line with their portfolios.
Thompson also notes that Birdthistle, an academic, follows a pattern of Gensler bringing in outsiders to head divisions, rather than the more customary selections of prominent Wall Street attorneys, suggesting that “a modest shakeup is in store in terms of prioritizing which regulatory issues to tackle.”
“Given the shakeup at the division levels by Chairman Gensler, I think there could be a few surprises in store for this part of the securities industry,” Thompson says. “We’ll just have to wait and see what Mr. Birdthistle has in mind.”
“The Division of Investment Management develops regulatory policies to oversee investment companies and investment advisors so that American investors can confidently save to buy homes, pay for college, or plan for retirement,” Gensler says. “I look forward to working closely with William to execute our mission.”
Birdthistle did not immediately respond to a request for comment on his priorities at the SEC. In a statement, he lauds the investment management unit’s “exceptional reputation for protecting investors in funds and the asset management arena,” and says he is eager to work with the chairman and staff “to help investors and others.”
As author of the 2016 book Empire of the Fund: The Way We Save Now, Birdthistle argues that Americans saving for retirement through fund-heavy 401(k) plans and IRAs are vulnerable to “the built-in flaws, perverse incentives, and litany of scandals that have bedeviled mutual funds,” according to a synopsis of the book.
“Though Americans often hear of the importance of low fees in fund investing, few are aware of the panoply of ways that some financial advisors have illegally diverted money out of mutual funds: from abetting hedge funds in trading after the legal deadline, to inflating the assets on which they are paid a percentage, to paying kickbacks for brokers to sell their funds,” the synopsis says.
Birdthistle joins the commission at a time when the chairman has laid out an ambitious regulatory agenda, and brought in staffers like Barbara Roper, a leading advocate for stricter investor protections, that signal a pivot toward a more muscular regulatory regime that has some industry leaders worried. Writing this week in Barron’s, Baird Vice Chairman John Taft warned that the industry is facing “the single most aggressive regulatory push we’ve seen from the SEC in decades.”
The addition of Birdthistle to the division of the SEC overseeing funds and advisors won’t likely allay any of those concerns.
“One would expect that he will bring a very strong pro-investor bias to the SEC Division of Investment Management, with a particular focus on transparency,” Bill Singer, a veteran securities attorney and the author of the Broke and Broker blog, says in an email to Barron’s Advisor.
“My expectation is that he will push for more clarity as to fees and will certainly seek to discourage the conflicts inherent in the ’40 Act community that are nurtured by the overlap of mutual funds, investment advisors, and brokerage firms,” Singer said, referring the 1940 Investment Advisers Act and Investment Company Act, the foundational statutes for regulation of advisors and fund companies.
Duane Thompson, president of the consultancy Potomac Strategies, anticipates that Birdthistle could advance the commission’s efforts to crack down on funds and advisors that advertise ESG investments, products that purport to make commitments around environmental, social, and governance practices. That could include ensuring that an advisor’s ESG disclosures on Form ADV are in line with their portfolios.
Thompson also notes that Birdthistle, an academic, follows a pattern of Gensler bringing in outsiders to head divisions, rather than the more customary selections of prominent Wall Street attorneys, suggesting that “a modest shakeup is in store in terms of prioritizing which regulatory issues to tackle.”
“Given the shakeup at the division levels by Chairman Gensler, I think there could be a few surprises in store for this part of the securities industry,” Thompson says. “We’ll just have to wait and see what Mr. Birdthistle has in mind.”
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