EDITORIAL: IT’S A GOOD BILL — FOR EVERYBODY

A Democratic congressman who is key to the success of any financial services deregulation has recently proposed a law to “improve the accuracy, simplicity and completeness” of how “commissions, fees, markups or other costs incurred by customers in the acquisition of financial products” are disclosed to consumers. It’s a powerful idea. But as InvestmentNews Washington reporter Sara Hansard wrote last week, the proposal by Rep. John Dingell of Michigan has split financial planning and adviser organizations.

Groups that represent advisers who don’t accept commissions say fine. Others say not so fast, criticizing the proposal’s vagueness, its possible loopholes, its burden on small business and its potential to become (in the words of one seasoned observer) “just a paperwork exercise.”

That has put major players like the International Association for Financial Planning, the Institute of Certified Financial Planners and the Investment Company Institute in a politically sticky position. They are lobbying against legislation that calls for clearly telling consumers about the numerous fees and commission arrangements with insurers, brokerages and mutual funds that can enrich planners, advisers and fund companies.

This is the wrong side to be on. Current disclosure regulations are a mess, with each new layer seemingly encouraging more obfuscation, not less. The tiny-type legalese in brochures and prospectuses, as well as the average mutual fund television commercial — where the announcer rips through the caveats in the final seconds — shows how snarky and useless many disclosure practices have become.

Can anyone honestly say the average consumer actually understands that some sellers of mutual funds may have been encouraged by management or vendors to peddle one investment product over another? That a brokerage or a fund company may have paid for their financial planner’s fancy computer? That their trusted adviser might win a free cruise from a variable annuity marketer if he happens to deliver a certain amount of sales? That their accountant who passes them to a brokerage for investment advice may get a financial thank you in return? That their adviser may receive an annual “trail fee” from the mutual fund based on the assets kept there? That their planner just returned from a “due diligence” tour sponsored by a brokerage or fund company?

Commissions and other fee arrangements that encourage sales aren’t “wrong.” But the fiduciary who doesn’t clearly disclose them to clients is wrong.

Mr. Dingell’s proposal offers a rare opportunity to improve dramatically the client-adviser relationship by cutting through the disclosure morass and deepening consumers’ understanding of exactly what it is that they’re paying for. The major associations should be working to strengthen Mr. Dingell’s idea, not fight it.