Over the past months, I’ve written rather extensively about the Obama Administration’s proposed securities industry reregulation, the various proposals of what that might look like, and the myriad initiatives to influence its ultimate form. I even offered my own suggestions about what might be best for financial consumers and the independent advisory world, along with a few predictions of what the likely result will be.
Recently, the hiatus created by the controversy over healthcare reform has given us a little time to sit back and reflect upon how things are shaping up on the financial services front. It seems to me that what we all need now is an objective assessment of what we know, what that’s likely to mean for the future, and how soon that future might happen. We need an insider/outsider who’s removed from both a Washington-inside-the-beltway mentality and from advisory industry politics, yet still is plugged into the latest thinking on Capitol Hill.
To get just such a perspective, I caught up with Harold Evensky, who at present is in Lubbock, Texas, nursing his wife Deena Katz’s recovery from successful knee reconstruction surgery. As many of you know, Harold is one of the eminences grise of the independent advisory world: a former chair of the IAFP and of the CFP Board, he now practices (almost) quietly with Deena in Coral Gables, and in their recently opened office in Lubbock (they both are also professors in the financial planning program at Texas Tech University). He’s also kept up on the reregulation debate as a member of the board of the Committee for The Fiduciary Standard, participating in meetings too numerous to count in Washington, D.C. over the past year.
From that vantage point, Evensky is encouragingly more optimistic about the reregulation than I’ve been, and truth to tell, probably a bit more practical as well. As a former broker turned professional fee-only advisor, Harold has always demonstrated an understanding of the realities of the financial services industry. Over the years, that sensibility has led to some uneasiness in my more idealistic mind, but it’s more than fair to say that I’ve learned a great deal from his well-reasoned observations, and often find myself rethinking my views after our conversations.
Today’s chat was no exception. Evensky is convinced that we’ll have a financial services reregulation as soon as the dust clears from the healthcare debate; probably not before you read this, but possibly sometime this spring. He also reports that the folks involved in the financial advisor portion of the new legislation/regulation–at the SEC and in Congress–all seem to be talking about expanding the duties under the Investment Adviser Act of 1940 to everyone who gives investment advice to the financial public. That would include stockbrokers, insurance agents, and those financial planners who until now have fallen through the cracks of existing regulation.
That’s encouraging news for those of us attracted to the simplicity of improving the current lot of financial consumers by eliminating the “broker exemption” that currently enables many advisors to avoid registering as investment advisors. Evensky bases this prediction on his observation that the conversations he’s been involved in have assumed a shift away from the current “rules oriented” regulation of FINRA, and toward a “principles” based fiduciary duty. It seems the Washington regulators and legislators have increasingly been focused solely on the nuts and bolts of just how such principle would be applied.
Frankly, I continue to be somewhat amazed–and more than a little puzzled–at discussions which apparently are occurring in Washington, in the insurance community, and by industry observers, such as Steve Winks (see his responses to my recent blogs at InvestmentAdvisor.com). The tone of these debates is that the notion of a fiduciary duty for advisors is completely new and unprecedented, and that this baffling, alien concept needs to be analyzed from scratch. The reality, of course, is that investment advisors have been operating under a fiduciary duty for some 70 years, pension advisors since ERISA was enacted in 1974, and private bankers for centuries. Suffice it to say that the principle is fairly well established, both in law and regulation.
Even the brokerage industry has had an up close and personal experience with the fiduciary duty in recent years. The apparently unforeseen fiduciary implications of its forays into the asset management business caused such consternation, hat the industry petitioned the SEC for relief. The Commission, of course, responded by extending the brokerage exemption to managing assets, under the infamous “Merrill Lynch Rule.” Even after the FPA successfully challenged that attempt, Wall Street simply avoided the “F” word by having brokers simply sell asset management rather than manage assets themselves.