[Editor's Note: Since the April issue of Investment Advisor went to press, Senator Chris Dodd's financial services reform bill has advanced in the Senate. Visit the News section of InvestmentAdvisor.com for the latest developments.]
With Senate Banking Committee Chairman Christopher Dodd’s (D-Connecticut) sweeping financial services reform bill released on March 15, the full Senate Banking Committee began marking up the revised “Restoring American Financial Stability Act of 2010″ the week of March 22 (the same week the House was determined to pass healthcare reform).
Now the true shape of the financial services reform bill will come into full view, as the Banking Committee parses through the bill’s existing amendments and adds new ones.
Despite the fact that Dodd ended bi-partisan talks on his financial services reform bill March 11, he vowed at a press conference on March 15 in which he released his draft legislation that his committee will produce a reform bill this year; Dodd was hoping to finish marking up the bill before Congress broke for Easter recess March 26.
However, Dodd’s Republican counterpart on the Banking Committee, Senator Richard Shelby (R-Alabama), said that while he was optimistic that a bipartisan consensus could be reached, he did not think it would be in a single week. In a statement after the bill was unveiled, Shelby said that “Over the coming days, my Republican Banking Committee colleagues and I will give Chairman Dodd’s proposal the serious consideration it deserves. Given the magnitude, complexity, and importance of this task, it is critical that we have sufficient time for a thorough review.”
How It Looks at Launch
As expected, Dodd’s re-crafted bill includes Senator Tim Johnson’s (D-South Dakota) amendment requiring the Securities and Exchange Commission (SEC) to first study and then use the findings of the study to create rules regarding the obligations of broker/dealers and investment advisors. Johnson’s amendment replaced the original language in Dodd’s bill, which would have required brokers to adhere to a fiduciary standard of care. No doubt advisors and others in the investment advisory community will be anxiously waiting to see whether the controversial amendment proposed by Senator Herb Kohl (D-Wisconsin), which requests that the SEC create an independent oversight board to regulate financial planners, is successfully inserted during mark-up. Bob Glovsky, chair of the CFP Board of Standards, said during a conference call with reporters in mid-March that most members of the Senate Banking Committee, including Dodd, support the Kohl amendment.
Knut Rostad, chairman of the Committee for the Fiduciary Standard, which lobbied hard against the Johnson amendment, arguing that it duplicated past efforts by the SEC, says that “all of the other fiduciary measures will not stop” because the Johnson amendment is part of Dodd’s bill. “We will continue to see brokers and advisors moving toward the [fiduciary] standard,” he says.
Kristina Fausti, director of legal and regulatory affairs for Fiduciary360 (Fi360), and a former SEC staff attorney, agrees that the “SEC is very interested in the fiduciary issue,” specifically through measures being pursued by the SEC’s Investor Advisory Committee, which was set up last June to give investors a greater voice in the Commission’s work.
Don Trone, CEO of Strategic Ethos and former head of Fiduciary 360, agrees that the fiduciary standard will continue to flourish. “The major wirehouses have started fiduciary divisions (top brokers who are permitted to acknowledge fiduciary status) and the national and regional B/Ds continue to expand the use of dual registration,” Trone says. Even without enabling legislation, “my sense is that the industry will continue to move prudently in the direction of a fiduciary standard.”