On the day President Donald Trump signed the latest tax bill, Brent Brodeski pledged himself and his resources to a new cause: to remove and redo sections of the law which he believes unfairly discriminate against RIAs.

“I’m building a coalition to raise the volume very loud and maybe raise some PAC money,” says Brodeski, who is chief executive officer and one of the principal owners of Savant Capital Management, a Rockford, Ill.-based RIA with more than $6 billion under management.

Brodeski has already sought support from 50 of the largest RIAs nationwide and the biggest asset custodians that serve the industry, including TD Ameritrade, which has signed on to seek tweaks to the tax bill.

“We believe RIAs deserve the same tax treatment as other business owners,” argues Skip Schweiss, a managing director for TD Ameritrade in its Advisor Advocacy and Industry Affairs department.

“As one of the largest custodians to independent RIAs, we show support by helping make the voices of advisors heard in Washington, so that policymakers are better aware of the consequences of their work,” Schweiss adds.

The coalition formed by Brodeski will push Congress to eliminate caps the new tax law sets on the amounts of pass-through qualified business income that sole-proprietor-partner and LLC-structured owners of RIAs may claim when filing taxes.

Although those concepts present a mouthful, Brodeski’s arguments against the new tax laws are not complicated. The new tax bill discriminates against RIA owners who haven’t set up a C corp structure, compared to the way it treats owners of the same types of businesses engaged in other industries, he contends.

Congress enacted the caps on financial service industry businesses’ pass-through qualified business profits to deter potential tax evaders. The law is aimed at stopping such businesses from re-characterizing wage income as qualified business profits. (Under the new law, qualified business profits are subject to a lower tax rate than wage income.)

But the new law’s provisions assume the lion’s share of RIA profits are wage-related and thus not eligible for the lower, qualified business profits’ pass-through rate. The bill set those caps at $157,500 for single taxpayers and $315,000 for married taxpayers filing jointly.

In contrast, manufacturing, real estate, architectural and engineering business owners face no pre-specified limits on pass-through qualified business profits eligible for the lower rates.

“The unintended consequences of this law are that the cost of capital for RIAs will increase substantively, RIA business valuations will decrease and it puts RIAs at a structural disadvantage compared to banks, insurance companies, mutual funds and the private equity and venture capital investors we compete against,” Brodeski argues.

Notably, if RIAs shed sole proprietorship, partnership, and LLC structures, and instead adopt C corp status, they would become eligible for the new tax law’s significantly lowered corporate rate, down from 35% to 21%. But Brodeski balks at that suggestion, arguing the scenario creates “needless added complexity and cost.”

Ultimately the new tax law “will actually result in the collection of less tax revenue and the less-efficient deployment of RIAs' capital and resources” and “make it more expensive to deliver transparent fiduciary advice to investors,” he says.

RIAs should not be the “have-nots, where profits are taxed 25% higher (37% vs 29.6%) compared to companies that make widgets, invest in real estate, or engage in professional services in the fields of architecture or engineering,” he argues.

His coalition will start developing congressional support for “surgical” reforms of the new tax law that will help RIAs win the same discounts other business owners get, Brodeski says.

His plea may not fall on deaf ears. A spokesperson for the House Ways and Means Committee, in response to an inquiry from FA-IQ, wrote in an email: “The Chairman and Committee Members will continue to welcome input, comments, and concerns as the new law takes effect.”

Notably, lobbying organizations such as the American Bar Association might also seek such reforms for their own constituencies. Under the new tax plan, law firms, similar to RIAs, also face caps on their eligible pass-through business income. The ABA lobbied hard and stopped a previous House version of a tax bill that barred law firms and RIA businesses from defining any business profits as non-wage and eligible for the qualified business profits’ pass-through rates.

Brent Brodeski

After the House and Senate conferees issued the final tax bill that Trump signed, ABA president Hilarie Bass conceded “not all ABA recommendations were incorporated into the final legislation.”

Yet some RIA owners will not join any coalitions for industry-specific targeted tax-law fixes. Ross Gerber, the president and CEO of Gerber Kawasaki Wealth and Investment Management in Santa Monica, Calif., already has structured his business as a C corp. But Gerber believes RIA owners who use LLCs and sole proprietorships have plenty of advantages, even under the new tax law. And they should stop complaining.

“I’m not crying my eyes out for them. It’s just a money grab,” says Gerber about proposals to tweak the tax bill. All RIA owners benefit from the tax bill’s most immediate consequence — the uptick in the equity markets, Gerber says. “The best benefit of tax reform is the stock market. We all got a substantial raise. We have gained enormously because of this tax bill,” Gerber says.