John Lefferts' Blog

Friday, October 2, 2009

Be careful what you ask for...

After a summer of simmering and debate, the Financial Regulatory Reform is finally gaining some traction and showing signs of taking shape. Paul E. Kanjorski (D-PA) has prepared a draft piece of legislation authorizing the SEC to make and enforce "harmonized" rules. Apparently it imposes a "fiduciary duty for brokers, dealers, and investment advisors in providing personalized investment advice to act in the best interest of retail customers without regard to the financial or other interest of the broker, dealer or investment advisor who is providing the advice". The draft legislative language also empowers the SEC in other ways under this new standard of conduct by: (1) giving the agency authority to examine and prohibit sales practices, conflicts of interest and compensation schemes the SEC deems contrary to investors' or the public interest; and (2) increasing its resources and providing rulemaking authority for enforcement purposes.

This is the first piece of legislation to bring the highly anticipated regulation of Investment Advisors and Registered Reps under a single harmonized roof. As part of my financial services industry involvement (I'll be at the Financial Planning Assoc meeting in OC later in the month), I'm headed to Washington DC next week on behalf of AALU to get a better "finger on the pulse" of proposed regulation and perhaps influence some senators and congressmen with some more balanced points of view. I don't know about you, but the increased government involvement in everything has me more than a bit uncomfortable. While initially hopeful that an Obama election would bring needed change, it seems the only thing he has done is stick the governments fingers into everything we do with trial attorneys and labor unions in his back pocket. I think he is a gifted orator and has favorably changed the international perception my folksy neighbor "W" portrayed, but he has empowered certain politicians, as well meaning as they may be, who could be on the path to destroying the "American Dream" as we know it. I had hoped for better.

Without question, the regulations in the financial services industry are outdated, misaligned and in serious need of reform. I, along with others have been calling for better aligned regulations, not necessarily more. But in the "be careful what you ask for, you may just get it" department, I'm afraid in laying the responsibility for re-regulation in the hands of well meaning, but misinformed politicians, what we may get is worse than what we've had. A copy of a speech AALU sent me done by UK insurance producer Tony Gordon is very instructive and provides a window into what could be our future. His comment, "The greatest risk to your business today is government interference with it, excessive regulation." is more true now than ever. Try this link for the entire speech:

It provides insights into what the future could look like in the US as they have been more progressive with financial services regulation than we have been over the past decade. And it isn't pretty.

Yes, we need re-regulation and now is that time. But bigger and more is not better. In fact it is a potential nightmare scenario for the financial services industry and the American people it serves.
I'll write next week upon my return from DC about my perspectives. Stay tuned...

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