Financial Regulation Changing For The Good?
Within the last 12 months, three industry powerhouses have joined forces to fight for stronger, better regulation of those of us holding ourselves out as financial advisors or financial planners. This directly impacts consumers of financial advice in that you may start to see more and more transparency of conflicts of interest and fees.
I asked an 82 year old lady how much she paid her advisors last year and she said “I don’t have that kind of relationship with them.” The truth was, she didn’t know. Nobody ever knows. Most fees are hidden away in small print that is never brought up in conversation except briefly. Conflict of interests like a broker working for a brokerage firm while giving advice as a investment advisor may never even be whispered. Hopefully some of that is going to change. See the message below from the Financial Planning Coalition:
April 16, 2009
The Financial Planning Coalition (Certified Financial Planner Board of Standards, Inc., Financial Planning Association® and National Association of Personal Financial Advisors) is pleased to provide an update on the most recent activities of the Coalition.
Consistent with the Statement of Understanding (released by the Coalition on January 7, 2009; available at http://www.CFP.net/media/release.asp?id=205), Coalition members have been working on a legislative agenda that would recognize financial planning as a regulated profession, subject to competency and ethical standards, so the American consumer can easily identify trusted and competent financial advisors. The Coalition has also continued to reach out to government, consumer, and financial services organizations to raise awareness about the need for standards and to seek support of the Coalition’s goals.
Current Political Climate
Since our last update, there have been a number of hearings, before the House Financial Services Committee and before the Senate Banking Committee, focused on so-called regulatory “gaps” in financial services regulation with specific attention to the need for “systemic risk” oversight of large financial institutions.
The issue of investor protection, including a broad overview of the current BD-IA regulatory structure, was the topic of a recent hearing before the Senate Banking Committee on March 26, 2009. SEC Chairman Mary Schapiro told lawmakers that the SEC is “studying whether to recommend legislation to break down the statutory barriers that require a different regulatory regime for investment advisors and broker/dealers.” Also pertinent was the testimony of Richard Ketchum, the new CEO of FINRA. He testified that “. . . FINRA is uniquely positioned from a regulatory standpoint to build an oversight program for investment advisors quickly and efficiently.” The prospect of a self-regulatory organization for investment advisers is being seriously considered.
The issue of the appropriate standard of care is a central issue in any discussion of a harmonized BD-IA regulatory scheme. Schapiro was quoted in a recent Wall Street Journal article by Jason Zweig (March 28, 2009, http://online.wsj.com/article/SB123819596242261401.html) as recognizing that investors prefer a fiduciary duty as the standard of care. In the same article, Richard Ketchum was quoted as advocating a uniform “fiduciary” standard: “It’s time to get to one standard, a fiduciary standard that works for both broker-dealers and advisers.” Brokers from the Securities Industry and Financial Markets Association (SIFMA) are also seeking a single standard. It recommends the adoption of a “universal” standard of care for investment advisors and broker-dealers that avoids the use of labels and appears to support a lower standard of care based on an arms-length commercial relationship between two parties.
Coalition Activity Report
In the context of this current debate over the appropriate regulatory structure and standard for the delivery of financial services, the Coalition has been actively advocating the principles outlined in the Statement of Understanding in meetings with SEC Commissioners, Members of Congress and key staff on the House Financial Services and Senate Banking Committees.
In its discussions with policy makers, the Coalition has underscored the need for a bona fide fiduciary standard of care that would apply to all who provide financial advice or planning or who hold themselves out as financial advisors or planners. The Coalition articulated this position in a letter submitted to the Wall Street Journal (http://www.CFP.net/downloads/Coalition_Response_to_WSJ.pdf) in response to the Zweig article. We questioned whether a single standard “that works for both broker-dealers and advisers,” as advocated by Ketchum, was possible, and asserted that: “A single standard could work only if it is a bona fide fiduciary standard—one that requires placing the client’s best interests first and foremost . . . .” The Coalition is also working with other state, consumer and financial organizations to jointly advocate for the inclusion of a true fiduciary standard for the delivery of financial advice in any regulatory reform package.
The Coalition continues to educate policy makers about gaps in regulation of the financial planning profession and the need for enforceable standards for financial planners that ensure that consumers and investors are able to easily identify financial advisors who meet baseline competency and ethical standards. The Coalition is discussing regulatory concepts with policy makers to address the uneven playing field in the delivery of financial advice to the public.
As we progress in this effort, we will continue to keep you briefed on our progress. As Congress turns its attention from systemic risk to the issues of investor protection, we will be looking to you for more active support of our efforts to seek important reforms for the financial planning profession.
Marilyn Capelli Dimitroff, CFP(R)
Richard Salmen, CFP(R), CFA(R), CTFA, EA
Financial Planning Association
Diahann W. Lassus, CFP(R), CPA/PFS
Kevin R. Keller
Chief Executive Officer
Marvin W. Tuttle, Jr.
Financial Planning Association
Chief Executive Officer