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Financial Planning > Behavioral Finance

Financial Services Bill Heads To Senate Floor

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WASHINGTON BUREAU — The insurance industry won two key changes in the financial services bill approved by the Senate Bank, Housing and Urban Affairs Committee.

One key change in the Restoring American Financial Stability Act bill would eliminate the need for all but one insurer to help pre-fund a “resolution authority,” or bailout fund, that could be used to resolve problems at troubled financial services companies that appear to pose a threat to the financial system.

The other key change would weaken an effort by Sen. Herbert Kohl, D-Wis., chairman of the Senate Special Committee on Aging, to create a financial planning oversight board and to impose a fiduciary “standard of care” on all sellers of retail investment products.

Sen. Christopher Dodd, D-Dodd, chairman of the Banking Committee, has been overseeing the drafting of the RAFSA bill, which is often called the Dodd bill.

Members of his committee passed the bill by a 13-10, party-line vote, but both Dodd and Republicans on his committee have suggested that they may be able to come up with a new, bipartisan version that can attract the 60 votes needed to reach the Senate floor.

Dodd and Sen. Richard Shelby, R-Ala., say they will meet during the upcoming two-week Easter recess to try to come up with a version of the bill that can get to the floor by the end of April.

The RAFSA bill markup is not “the end of the road, but rather just another step in the process,” Shelby says in a statement.

Sen. Robert Corker, R-Tenn., who negotiated with Dodd on a compromise before Dodd decided to go ahead with a markup of his own version, said during the markup that the bill has a 90% of passing.

“I think it’s probably true that we have a better opportunity with a different cast of characters — the full Senate — to do something that is sound, policy-wise,” Corker said


A new Financial Stability Oversight Council would oversee the Resolution Authority. The FSOC would consist of 11 federal regulators, and one insurance representative appointed by the president. The Treasury secretary would lead the council.

The FSOC would focus on identifying, monitoring and addressing systemic risks posed by large, complex financial firms as well as products and activities that spread risk from one firm to others, Dodd says.

The FSOC would urge regulators to rein in companies that grow large enough and complex enough to pose a threat to U.S. financial stability, Dodd said.

An earlier version of the bill would have required “any” financial services company with more than $50 billion in assets to contribute to the Resolution Authority fund. The fund is supposed to accumulate about $50 billion in cash in 5 years.

Dodd used a manager’s amendment to change the provision to read, “and any nonbank financial company supervised by the Board of Governors” of the Federal Reserve System.

The change means that MetLife Inc., New York (NYSE:MET) is the only insurer that would have to help pre-fund the Resolution Authority, according to a lawyer who represents an insurer.

If, however, the failure of a large company depleted the fund, all non-health insurers with more than $50 billion in assets might have to contribute, the lawyer says.


Consumer groups and financial planner groups have been pushing for Congress to make the U.S. Securities and Exchange Commission apply a “fiduciary standard of care” to all providers of personalized investment advice.

A fiduciary standard would require broker-dealers and life insurance agents affiliated with broker-dealers to put the interests of customers above all other interests.

Broker-dealers and life insurance agents want the SEC to continue to regulate them using a standard of care based on suitability, which requires broker-dealers and agents to verify only that the products that a customers buys are suitable for those customers.

Life agents say they would have a difficult time meeting a fiduciary standard, because they often have contracts permitting them to sell products only from one company, or from a small group of companies.

The latest version of the RAFSA bill would not impose a universal fiduciary standard.

Instead, the bill would require the U.S. Government Accountability Office to study the effectiveness of state and federal regulations at protecting consumers from misleading financial advisor designations; current state and federal oversight structure and regulations for financial planners; and legal or regulatory gaps in the regulation of financial planners and other individuals who provide, or offer to provide, financial planning services to consumers.

The GAO would have 6 months to report to Congress on its findings.


The current version of the RAFSA bill also would:

- Create an Office of National Insurance.

- Make systemically risky insurers subject to federal oversight.

- Give regulators in the domiciliary state of a reinsurer or surplus lines carrier responsibility for regulating it, reducing the ability of a state’s regulators and laws to affect nonadmitted reinsurers and surplus lines carriers. .


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