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Regulation and Compliance > Federal Regulation > SEC

The Obama Regulatory Proposal

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Well, the Obama Administration has come out with its sweeping recommendations “to restore confidence in the of integrity of our financial system” in a massive 85-page white paper. In it the President’s team proposes a five-part initiative to increase regulation of virtually every corner of American finance from banks to brokerage firms to insurance, expanding the power of the Federal Reserve, the FDIC, and the SEC, and creating too many new councils and agencies for me to tally up. (You probably don’t recall that Herbert Hoover tried the same thing in 1929: It didn’t work out so well.)

For the independent advisory world, the most direct impact of the White Paper appears in a single sentence (which is not even in the Summary, you have to read the whole thing to find it), under the third initiative entitled “Protect Consumers and Investors from Financial Abuse.” The second point of the third section (on page 14 for those of you who are following along) reads: “The SEC should be given new tools to increase fairness for investors by establishing a fiduciary duty for broker-dealers offering investment advice and harmonizing the regulation of investment advisors and broker-dealers.”

And that’s it. Despite mind-numbing detail on the new “Financial Services Oversight Council” and the regulation and use of credit rating agencies, almost as an aside, the Administration simply adds this “Oh, and by the way, the broker exemption to the ’40s Act was a dumb idea, so fix it.” Yet, his one simple sentence represents a major victory for profession financial advisors who already assume a fiduciary duty to their clients and all the other responsibilities of RIAs, and it proposes the undoing of 70 years of client confusion.

That’s the good news. The bad news is that under this proposal, it will be up to the FINRA-dominated SEC to sort it all out. In my view, the easiest way to accomplish both goals–a fiduciary duty for brokers and “harmonized” regulations–would be simply repealing the “broker exemption” itself, requiring anyone who offers investment advice–including brokers–to register as in investment advisor, and be subject to SEC oversight.

Hopefully, the prospect of expanding the SEC’s purview to the 700,000 or so registered reps will be enough to overcome any bias that Mary Schapiro harbors toward FINRA. But just in case, a concentrated effort by all factions of the independent advisory world to support at least this small part of the Obama Administration’s proposal couldn’t hurt.


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