The 2010 reform legislation will impact RIAs, the large banks employing wirehouse advisors, and independent broker/dealers.
“This is a tough law that will also have profound effects on the operations and cost structure of most financial services companies and financial markets,” said Securities Industry and Financial Markets Association (SIFMA) president and CEO Tim Ryan in a statement on June 25.
Many analysts note that the initial reforms were much more sweeping than the final legislation. “While we believe the final bill will be restrictive to earnings and constrain capital, the outcome could have been worse, with both derivative reform and trading restrictions eased somewhat in the final hours, though maybe not as much as some of the bigger banks would have hoped,” wrote Jason Goldberg, an analyst with Barclays Capital in New York in a June 28 report.
This doesn’t mean that carrying out required reforms will be a walk in the park for banks and other financial organizations: There are at least 350 new regulations and some 150 studies mandated in the 2,000-plus page conference report, according to the U.S. Chamber of Commerce.
For one, “investment advisors will be dealing with this legislation for years to come,” said David Tittsworth, CEO of the Investment Advisers Association, in an e-mail interview, though it remains to be seen “whether or not the bill represents a net ‘win’ or ‘loss’ for advisors and their clients.” Tittsworth also added that the legislation may lead to new regulations “that could increase the complexity and burden of compliance for all advisory firms.”
The Financial Services Institute, according to the independent broker/dealer group’s CEO, Dale Brown, in an e-mail interview, has wanted to see “a new standard of care developed for all advisors in all client situations across all business models in the industry.” The group now has “concerns about imposing the fiduciary duty and its unintended consequences on small investors.” With the increased regulatory complexity, Brown explains, “Small investors could be priced out of the reach of professional service and advice. That is not a good outcome.” The B/D community, he adds, isn’t intimidated by the concept of a fiduciary standard. “But the devil is in the proverbial details,” Brown said.
For large banks, such as J.P. Morgan, Goldman Sachs, and Morgan Stanley, “The biggest impacts are on proprietary trading and derivatives,” said Chip Roame, head of the consulting firm Tiburon Strategic Advisors.
“Bank of America-Merrill Lynch and Wells Fargo will probably be most impacted by consumer-lending reforms on the banking side … not so much on the high-net-worth side,” Roame explained. “But, still, the banks are going to make less money, and then could try and gauge [advisors] more to keep up margins. Thus, these reforms could impact the private-client groups of these institutions, as well as J.P. Morgan.” -Janet Levaux, Research