The American College, which provides educational exams for the Certified Financial Planner (CFP) mark and other planner designations, is imploring Senator Christopher Dodd (D-Connecticut), chairman of the Senate Banking, Housing, and Urban Affairs Committee, to reconsider Section 913 of his Restoring American Financial Stability Act, the financial services reform bill which would require that life insurance agents register as investment advisors and impose what The College calls a “one-size-fits-all” fiduciary standard.
Laurence Barton, president and CEO of The College, told Dodd and ranking minority leader Senator Richard Shelby (R-Alabama) in a November 30 letter that the discussion of harmonizing the rules for broker/dealers and advisors accelerated following the 2008 release of the Rand Corp. study that showed consumers were confused about the difference between advisors and brokers. Barton notes in his letter that the Rand study “stopped short of making concrete recommendations” on how to provide clarity to consumers about the differences from a legislative and regulatory perspective.
The House Financial Services Committee, Barton continues, “struggled with these same issues during their debates on the Investor Protection Act. Your approach in Section 913 of eliminating the exclusion for brokers and dealers from the Investment Advisers Act of 1940 may seem simple, but by adopting it, you fall into the same trap that the House Financial Services Committee narrowly averted.”
Barton told Dodd that “It’s one thing to harmonize standards at a fiduciary level when brokers, dealers and investment advisers are providing the identical service of offering advice for a fee about securities. The difficulty is that brokers, dealers, and investment advisers, while having some overlap in services, are not the same. A ‘one-size-fits-all’ approach has the potential to damage consumer choice and access while not enhancing consumer protections at all–an unintended outcome that could echo some of the legislative disasters the United Kingdom has enacted in financial services over the past few decades.”
Barton–who notes in his letter that The College’s students span the profession from life insurance and property/casualty agents to advisors at banks, independent brokerages, and securities firms–says that although the fee-based advisor groups may support Section 913, “it could have the most adverse impact on the majority of our citizens who don’t use fee-based advisory services.” He suggests that Dodd take the Rand report “one step further” and commission the SEC to issue a report that answers the following questions:
? How will Section 913 impact distribution systems and consumer access for certain products, such as variable life insurance?
? What additional expenses will Section 913 generate–”ultimately resulting in added costs passed on to lower and middle-market consumers?”
? Will the number of financial advisors decrease significantly under Section 913, leaving fewer Americans with the insurance and financial products they need?
? Does the Senate Banking Committee “know for a fact that consumer protection will be enhanced, or will the only tangible result be an increase in paperwork, costs, and liability?”
To download the complete 2008 Rand report to the SEC, please click here.