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July 18, 2010 at 08:00 PM
As Deputy Secretary of the U.S. Treasury Neal Wolin said on July 15 at SIFMA’s Regulatory Reform Summit, “reasonable people will disagree on some details, just as reasonable people will undoubtedly have different opinions on the details of rules and other implementation work going forward.”
All in all, many of the provisions are good–or have the potential to be good–for individual investors, and/or consumers. In fact, given the extensive lobbying efforts by what Vanguard’s Founder, John C. Bogle calls the “financial industrial complex,” it is a wonder that so many pro- consumer or investor provisions made it into the bill. Barney Frank’s and Christopher Dodd’s legacies are looking better, at least to investors.
For investors, the fact that the bill “Gives SEC the authority to impose a fiduciary duty on brokers who give investment advice–the advice must be in the best interest of their customers,” according to the summary release from the House Financial Services Committee, will probably make a direct difference to more investors than any other provision. This editor is a member of The Committee for the Fiduciary Standard.
Yes, the adoption of rules after the SEC study is still very open and it is up to the SEC to continue to get back to its roots as the agency that protects investors. The SEC has been under fire for all sorts of reasons, some of it due to a politically-driven choking off of funding that the Commission already earns but doesn’t receive (my next blog), but Chairman Mary Schapiro and Commissioners Luis Aguilar and Elisse Walter have been on the record regarding extension of the fiduciary standard, as in the Investment Advisers Act of 1940, to brokers who provide advice to retail investors.
The fiduciary standard for all who provide advice will go a very long way toward protecting investors from practices like high, and frequently not clearly disclosed, fees paid for shelf space on some firms’ platforms, layers of fees in proprietary products, and imprudent conduct on the part of some actors in the financial services industry. While it won’t directly cut those fees, fidicuaries are required to control investment costs for their clients and clearly disclose total costs to invesors.
I heard, at an industry conference recently, about some firms that would not be able to stay in business if they were not able to sell “alternative” products that pay high commissions–under a fiduciary standard of conduct.
In other words, if they had to put their clients’ best interests first, they couldn’t sell these “products.” That seems like a shaky business model to start with and maybe this is the time to revisit that particular business model. If you can’t stay in business without gouging customers, maybe the SEC–and FINRA–should examine that.
