Hugs For Financial Reform

Now that the Financial Reform Bill has been signed into law

, many financial advisors are expressing concern at how this legislation may affect the industrys relationship with retail consumers.

FinReg was passed for three crucial purposes

1.To bring the notion of too big to fail to a timely end

2.To shield the taxpayer from the burden of bailouts and

3.To protect consumers from unscrupulous financial practices.

The growing consensus among many advisors seems to be that the implementation of a fiduciary standard will restrict investment opportunities and endow the SEC with regulatory authority bordering on omnipotence. AmericanTaxation.com suggests that the passing of FinReg does not automatically set in place a fiduciary standard for investment advisors; it simply charges the SEC with undertaking a six-month study to ascertain whether brokers furnish investors with advice under a fiduciary standard (as defined within the Investment Advisers Act of 1940) The firm says that this six month period provides Wall Street with a chance to defend against these game-changing rules, adapt to accommodate them or, most likely, a combination of both.

AmericanTaxation.com consultants point out that such a fiduciary standard would create an environment in which brokers and advisors must select the best course of action for their customers rather than a suitable option for their requirements which is how the current rules work. According to The Committee for Fiduciary Standards, the best option would be an option that: puts the clients interests first, doesnt mislead them and avoids conflicts of interest. To all intents and purposes, the fiduciary standard would develop a more honest and efficient relationship between the advisor and the consumer. A worthy aim, surely?

One area the fiduciary standard would affect is 401ks. The way most defined-contribution plans currently work, there is a direct conflict of interest between plan participants and the brokers who provide advice about the plan. Remuneration for brokers who implement retirement plans are based on the level of assets in the plan and the specific investment vehicles selected for the plan. Under FinReg, say AmericanTaxation.com, investors may actually end up getting lower-cost investment vehicles and better investment advice; again, hardly disadvantageous.

One AmericanTaxation.com consultant said, Advisers need not fear or lobby against financial regulation. Although, in the past, the implementation of new legislation has often been described as retrograde and inept, the theory underlying this new legislation is good for consumers.

by: Roger Steadman

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