Senate Banking Committee Chairman Christopher Dodd (D-Connecticut) released a draft of financial reforms on March 15 that is extensively re-worded and watered down from his robust November 10 Discussion Draft.
The new version of the proposed Bill contains provisions on “Consumer Protections,”–this version housed at the Federal Reserve rather than as a standalone agency. It also, according to the summary, “Ends Too Big to Fail”, creates an “Early Warning System,” designed to “to identify and address systemic risks posed by large, complex companies, products, and activities before they threaten the stability of the economy;” and provides “Transparency & Accountability for Exotic Instruments,” including, Dodd said in his announcement, “hedge funds and derivatives” as well as, “mortgage brokers and payday lenders.” See the draft of the full text of ”Restoring American Financial Stability Act of 2010.”
Perhaps of most interest to wealth managers and their clients, the “Investment Advice” provision of the legislation, ”
The new wording of this critical investor protection part of the reform legislation, requiring a study instead of the fiduciary standard itself, is widely seen as a big break for broker/dealers, and a blow for investors. It is very different from Dodd’s original November 10, 2009 Discussion Draft, (see summary), which contained the requirement that those who provide advice to investors register as investment advisors, thereby requiring them to put their client’s best interests before their own, as fiduciaries. That Discussion Draft also eliminated the broker/dealer exemption allowing advice that is “incidental” to the investment process to be provided by brokers–who are not required, in most cases, to put clients’ interests ahead of their own or their firms’.