SEC Would Suspend Rulemaking, Enforcement During Potential Shutdown

Comment periods would remain open for the AI and safeguarding proposals, but comments would not be reviewed in real time.


The Securities and Exchange Commission will be left with “a skeletal staff” in the event of a government shutdown, unable to process new IPOs or take new enforcement actions, SEC Chairman Gary Gensler explained Wednesday. His remarks were given in response to questions at a hearing of the House Financial Services Committee.

Gensler estimated that between 90% and 93% of the SEC’s staff would be furloughed during a shutdown. This would result in the SEC operating with a staff of approximately 400 of its total 4,600 employees.

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Many SEC functions would have to halt in that scenario, including reviewing and approving documents related to IPOs. In response to a question from Representative Maxine Waters, D-California, Gensler said, “The initial public offering market would be shut down with the government,” and firms already in the process of going public would be in a “subliminal state where they cannot access the markets.”

He added that, in some cases, public companies will not be able to make new offerings because the SEC will lack the staff necessary to process the paperwork.

The possible shutdown of the government and the IPO market comes as initial offerings have begun to pick up this year, with a total of 79 sold so far in 2023, up from 71 for all of 2022, according to data from Renaissance Capital. This year’s activity remains significantly lower than the 397 that priced in 2021. Renaissance also reported 130 IPOs filed with the SEC so far this year, an 18.2% change from the same date last year.

The SEC would also be unable to take on new enforcement actions. Gensler explained that the public can still give tips to the SEC Division of Enforcement, but “there won’t be the people on the other side to investigate it.”

As for rulemaking, Gensler said the SEC “cannot finalize rules,” but comment files will stay open. He added that, in the event of a shutdown, there would not be staff to read those comments as they come in. The SEC has at least two comment periods that close in October, including a proposal on the conflicts of interest associated with the use of artificial intelligence due October 10 and a proposal on how advisers safeguard client assets due October 30.

Gensler noted that government shutdowns also damage employee morale and retention at the SEC. Most employees will be furloughed or expected to work without pay, and “it’s hard on people. They can get jobs at law firms and elsewhere.”

Investment Advisers Assume Lower Market Returns, See ‘Safe’ Withdrawal Below 4%

A number of advisers to RIAs are predicting lower historical growth rates on stocks and bonds, posing challenges for retirement income plans, according to a survey by RetireOne and Allianz.


The results of a survey of investment advisers could make a case for adding a guaranteed income annuity to a retirement portfolio, but it could also just signal less to count on for long-term retirement savers.

In a report released Wednesday by annuity provider RetireOne Inc. and insurer Allianz Life Insurance Co. of North America, about 70% of 200 investment advisers expect long-term fixed income to be two to four percentage points off historical averages, and nearly half (48%) predict the same for equities.

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That pessimism may also explain why more than one-third of investment advisers who took the survey believe a “safe withdrawal” rate assumption should be lower than the oft-cited 4% rule to be realistic for retirees. This is not a new claim, with analysts from Morningstar suggesting 3.8% as the “safe” rate of anticipated withdrawal at the end of 2022.

“Whether the safe withdrawal rate be adjusted for inflation to 3.3%, stay at 4% or get more aggressive at 6%, the problem remains that financial advisers are challenged when it comes to keeping their clients’ retirements on track,” David Stone, founder and CEO of RetireOne, said in a statement with the report. “With inflation anticipated to stay higher for longer, [increasingly high] healthcare costs, uncertainty around social security benefits, in addition to today’s geopolitical concerns, it’s only gotten to be a more complex issue for advisers to solve.”

Peak Worry

Advisers in the RetireOne and Allianz survey expressed concerns about helping clients have enough to live on as the country nears “peak 65” retirement in 2024, when more Americans will reach retirement age than any previous year. Those worries include inflation, which 97% of advisers cite as a concern for clients’ retirement portfolios, the inadequacy of Social Security to meet income needs (87%) and worry that employer-provided retirement benefits may be insufficient (63%).

“Lower capital market assumptions may present challenges for retirement income plans,” researchers wrote in the report, quickly pivoting to the benefits of adding a secured income annuity to retirement plans. “Protected accumulation and income solutions can improve failure rates and boost clients’ confidence in their retirement plans.”

Many of the investment advisers surveyed (59%) report allocating a portion of client portfolios to annuities both for purposes of a regular paycheck in retirement and as a substitute for fixed income. But almost 20% of advisers are still skeptical of the solution, according to the report.

Annuity Skepticism

Those advisers “reluctant to use annuities are concerned about fees, liquidity, opacity, and complexity,” RetireOne and Allianz wrote in the report. “Given that advisory solutions have largely addressed these objections, it would appear that awareness is low: three in ten respondents report that they are unaware that there are fee-only annuities today that, in some cases, do not have any surrender charges and are much lower in fees compared to their commissionable peers.”

RetireOne and Allianz recommend that advisers consider using registered index-linked annuities and fixed-index annuities to combat retirement income outcome concerns.

“Rising interest rates have been challenging for investors,” Stone said. “The upside is that annuity guarantees and payout percentages have also risen, which, in turn, brings down the cost of creating lifetime income streams.”

The firms also recommended that advisers who do not have insurance licenses to provide annuities can partner with outsourced insurance distributors who do.

“Nearly half of IARs who recommend annuities appear to maintain insurance licenses presumably to write commissioned annuities for clients,” according to the researchers, but some “may not be aware that they can partner with OIDs to provide advisory solutions, bill on those assets and simplify their firm structures, while boosting AUM and firm valuation.”

The 2023 RetireOne + Allianz RIA Protected Accumulation + Retirement Income Survey was conducted in May with 200 investment adviser representatives.

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