Financial Regulatory Reform - 016

Financial Regulatory Reform: 

June 30, 2009 12:15 p.m. PST 

The Obama administration and Congress are in the process of developing a framework for updating the regulations that govern our financial system. The actions of many financial firms during the past five years created huge systemic risk to the economy at large. Taxpayers are now footing the bill for the reckless pursuit of profits by Wall Street. Clearly reform is needed. The question is what to do. 

All of us should be paying particular attention to the proposed new legislation. On June 17th the Obama administration unveiled "Financial Regulatory Reform: A New Foundation." This nearly 90 page White Paper, lays out a roadmap for Congress as it debates the changes that need to be made. 

As a registered investment advisor, and a member of the Financial Planning Association, I have been involved in the debate that has now moved to the halls of Congress. I believe that consumers should clearly understand the relationship they have with their financial advisor. Unfortunately, this relationship is not well defined under current law. In fact, it is often deliberately obscured by advisors who have a hidden agenda. 

Generally, a consumer is dealing with one of two types of “advisors.” There are those advisors who charge a fee-for- advice and there are advisors who earn compensation through the sale of a product. Advisors who charge a fee-for-advice are held to a “fiduciary” standard. Advisors who sell products, such as brokers, are held to a lower standard known as a “suitability” standard. 

The Financial Regulatory Reform Plan, presented by the Obama Administration, is meant to restore confidence in the integrity of our financial system. One aspect of the plan is to hold all financial advisors to a fiduciary standard.

Both Congress and the Obama Administration are inclined to strengthen the fiduciary concept. The position of the Obama administration is supported by the Financial Planning Association (FPA) as well as broad range of consumer protection groups such as the Consumer Federation of America. 

It is very important that consumers understand the reason for the regulatory reforms being proposed in Congress. You must first become educated on the two standards of business taking place in the financial world today, and must draw your own conclusion on the firm you are working with. Ask yourself this question, "do they have my best interests at heart." The reforms laid out in the Obama White Paper will protect the consumer, the economy and the nation. 

For further reading on the subject, you can access articles pertaining to the topics mentioned in this article, by accessing the following links:

The following is a link to the entire White Paper document, on Financial Regulatory Reform, pay special attention to page 71, which details the proposals under the plan, "The White Paper on Regulatory Reform, detailing the proposed reform"

From The Wall Street Journal, regarding full financial disclosure, entitled, "About Time:  Regulation Based on Human Nature." 

Also from the Wall Street Journal, an article on the Fiduciary Standard, entitled, "Who Will Guard Your Nest Egg." 

From the Wall Street Journal Blog, is an article entitled, "Geithner's Remarks on Financial Regulatory Reform"

From Financial-planing.com, is an article about competing regulatory concepts favored by the brokerage industry, entitled, "The Schapiro Doctrine."

Investors should take interest in these matters, as they affect regulation aimed at improving stability and fairness in our financial markets.  We welcome any comments and feel as though many would benefit from this read. 

Mark Halsey

Staff Writer at Wealth Analytics

www.wealthanalytics.com