Tue, December 15, 2009
House Passes Financial Reform Bill With Loopholes
Last Friday, the House passed the the Wall Street Reform and Consumer Protection Act, a measure hailed as the biggest reform of financial services in half a century. Already, though, some interesting exceptions have been spotted in the bill, which weighs in at 1200-plus pages. The bill does a number of laudable things, including the creation of a Consumer Financial Protection Agency to oversee financial products and services.
Will financial advisers be fiduciaries, or not?
One of the questions that has been discussed seemingly endlessly in the financial press is the question of whether all financial advisers (including brokers) should be regulated under the standards of conduct provided in the Investment Advisers Act of 1940, otherwise known as the duty of fiduciary care. Financial firms have been arguing for a “harmonized” fiduciary standard that would allow brokers to avoid acting as real fiduciaries.
The bill directs the SEC to regulate all financial advisers as fiduciaries, but according to Investment News.com, the final version of the bill includes a statement that “Nothing in this section shall require a broker or dealer or registered representative to have a continuing duty of care or loyalty to the customer after providing personalized investment advice about securities.” If carried forward into law, this provision would mean that some advisers would be obliged to behave as fiduciaries in all their dealings with cients, while others would not be held to a fiduciary standard after giving advice. The full implications of this exception aren’t clear – it probably means that a broker, having given advice, could execute transactions in a manner that would not be in the clietn’ts best interest.
Exemptions for some financial companies
The Wall Street Journal has also reported that the bill carves out exemptions from oversight for several companies that provide financial services, including General Electric, Pitney Bowes, and USAA. Most financial companies will be regulated like banks under the new regulations, but the bill contains language that leaves them free from those restrictions.
