Every year, the state and federal governments roll out numerous pieces of legislation, propositions, regulations and taxes – some that are voted on by citizens and some that are voted on by elected officials. Sometimes these items have positive impacts on businesses and sometimes negative. Then, every four years, the presidential elections add a whole new level of uncertainty for businesses and private residents.

The financial services industry is often greatly impacted when it comes to legislation, mostly because the industry is so broad and deals with every other industry, as well as private individuals. Financial services include credit unions, banks, insurance companies, accountancy companies, investment funds and more.

The U.S. Department of Labor’s conflict of interest rule and related exemptions could be good news for JC Abusaid, president and chief operating officer of Long Beach-based Halbert-Hargrove Global Advisors, which offers fiduciary investment management and wealth advisory services. The rule would shine a light on the company’s fiduciary excellence, setting them apart from other firms. (Photograph by the Business Journal’s Larry Duncan)

According to Blake Christian, a tax partner at Holthouse Carlin & Van Trigt LLC (HCVT), a certified public accountant (CPA) firm, some corporations will be facing a compressed tax filing season when filing their 2016 tax return, which requires earlier planning on the part of the company. This is the effect of legislation passed last year.

“We’re advising most of our clients we do year-end tax planning in November and December,” Christian said. “That will be all the more important because, if Hillary [Clinton] gets in, taxpayers will want to accelerate income into 2016 in order to get a lower tax rate and then push out expenses into 2017 when the tax rates may very well go up.”

As far as taxes are concerned, Christian said a lot depends on the presidential outcome and the makeup of Congress after the elections. As of August 10, each presidential candidate had a very different proposal concerning resident income tax brackets and percentages.

Hillary Clinton’s proposal for single filers maintains the same tax brackets that are in effect now but adds an additional bracket for those making more than $5 million. Her plan breaks down as follows:

• $0 to $9,275 pays 10% income tax with 0% on capital gains and dividends

• $9,276 to $37,650 pays 15% income tax with 0% on capital gains and dividends

• $37,651 to $91,150 pays 25% income tax with 15% on capital gains and dividends

• $91,151 to $190,150 pays 28% income tax with 15% on capital gains and dividends

• $190,151 to $413,350 pays 33% income tax with 15% on capital gains and dividends

• $413,351 to $415,050 pays 35% income tax with 15% on capital gains and dividends

• $415,051 to $5 million pays 39.6% income tax with 20% on capital gains and dividends

• $5 million plus pays 43.6% income tax with 24% on capital gains and dividends

In extreme contrast, Donald Trump’s plan completely refigures tax brackets. His plan breaks down as follows:

• $0 to $25,000 pays 0% income tax with 0% on long-term capital gains and dividends

• $25,000 to $50,000 pays 12% income tax with 0% on long-term capital gains and dividends

• $50,001 to $150,000 pays 25% income tax with 15% on long-term capital gains and dividends

• $150,001 and more pays 33% income tax with 20% on long-term capital gains and dividends

Aside from individuals’ tax brackets, Christian noted Trump’s push to lower taxes on businesses, including limited liability companies and S corporations, which make up 80% of HCVT’s clients. Christian said, “Instead of paying 36% at the federal level, they’ll see that rate drop to 15%. I think that’ll have a pretty stimulative effect on the economy because you’re going to have business owners having a much better after-tax profit margin.”

According to AmericanThinker.com, IRS migration data states that over 250,000 California residents moved out of state between 2013 and 2014. Christian said that many businesses are also exiting the state, or if the business stays, sometimes the owner will move. This is because of excessive taxes and regulations on businesses and the wealthy and items like the upcoming Proposition 55 on the November 8 ballot. If passed by voters, Prop 55 will extend the 2012 voter-approved tax hike on residents making more than $250,000 a year. The temporary tax increase, which is supposed to end in 2018, was a means to fund state schools without cuts.

“Even though that was supposed to be temporary, they want to extend it, as usual,” Christian said. “So since the masses are going to be voting on that and it affects only the top 3%, that will probably pass again.”

Christian acknowledged that the state has some incentive plans for businesses to stay or relocate here but that with the fallout from the Affordable Care Act and the plans for increased minimum wage, California businesses were hit with a “double-whammy,” making conducting business here more difficult.

Not all legislation has a negative impact on businesses, however. JC Abusaid, president and chief operating officer of Halbert-Hargrove Global Advisors, which offers fiduciary investment management and wealth advisory services, said the primary legislation his company is following is the U.S. Department of Labor’s conflict of interest rule and related exemptions.

“Anytime we are dealing with someone who is moving their monies from one IRA to another one, it’s going to force us to conduct additional due diligence and additional analysis to document and make sure that we understand and can justify the transfer from wherever they are to us and that somehow we’ve taken into account the fees that they were paying and the expense ratios,” Abusaid said. “We’ll need documents in our files that show that transaction was justified and from a fiduciary perspective we can stand behind it.”

Though it means more work for his company, Abusaid explained that this regulation will bring attention to the word fiduciary, a label that Halbert-Hargrove has boasted since its inception in 1989. In 2010, the company even pursued a fiduciary certification by the Centre for Fiduciary Excellence, in which they submitted themselves to an audit by a third party to prove the firm operates at the highest fiduciary standards possible.

Abusaid hopes a light shining on the idea of fiduciary excellence will give his firm a meaningful differentiation from other companies in the public eye. If his company’s status is finally recognized by the general public, Abusaid said the firm will be more than happy to add to its workflow, deal with a little more red tape and “cross a couple more T’s and dot a couple more I’s.”

When talking about rules and regulations, banking is always a hot topic, especially after the bailout of mega-banks in recent years. Beth Mills, vice president of communications for the California Bankers Association (CBA), talked about four bills that are upcoming or were recently acted upon by Gov. Jerry Brown.

Assembly Bill (AB) 2693 deals with disclosures being made to consumers when applying for property assessed clean energy (PACE) loans. A PACE loan is typically used by consumers who are installing solar panels or other energy-efficient retrofits to their homes. Consumers were not being made aware that in order to sell or refinance their homes they had to first pay off the PACE loan, which is often tens of thousands of dollars. AB 2693, which the CBA sponsored, requires this type of information to be disclosed to consumers before they enter into these obligations.

“And then another bill, Assembly Bill 1784, a lot of times banks will go into high schools and middle schools and assist students, kind of setting up a school-based bank,” Mills said. “It’s good financial education for kids. But in order for state-chartered banks to be able to do this, they were essentially having to apply for a bank branch license with the state regulator.”

Mills explained that the CBA also sponsored AB 1784, which was signed and waives the requirement for banks to apply for the license.

Senate Bill (SB) 907 was supported by the CBA but was vetoed by Governor Brown. The bill would have given tax relief to homeowners who were granted a loan modification or short sale during the 2014 through 2016 tax years. Mills said that currently homeowners have to pay a tax on the debt that was forgiven, but SB 907 would have waived that charge.

Another bill the CBA did not get its way with was SB 1150. The bill gives widowers who are not on a mortgage loan the same rights to receive a loan modification as their deceased spouse and was approved by Governor Brown on September 29.

“We have some technical issues with the bill. A lot of those we got remedied, but it does have a private right of action clause that we are very much opposed to,” Mills said. “It’s primarily giving the right to sue at any point for damages, and it’s very heavily weighted toward the plaintiff. And our worry is related to a lot of frivolous lawsuits that we may see come forward because of this.”

When talking about laws and regulations at the federal level, Mills said that there have been a number of bills that would “seek to tailor the amount of regulatory burden a financial institution would have based on its business model.” Basically, regulations would be based on the size of the bank, and a billion-dollar community bank would not be regulated the same as a trillion-dollar bank. However, Mills said not much has been happening in Congress, in part because it is an election year and everyone is waiting on the outcome.

“We, as an association, have not taken any particular position or endorsement of either candidate,” Mills said. “I think what is important for us is to get through the election cycle and then see.”

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