If you are a commercial banker, savings and loan operator, mortgage broker or hedge fund artist, there is a lot to concern you in the regulatory-reform proposal outlined by the Obama administration last week.
If you are a securities broker, the plan might have you shivering in your product-and-customer suitability boots.
But if you are a registered investment adviser or a financial planner you can be forgiven for simply scratching your head, or perhaps sighing with relief, after scouring the detailed analysis and reform suggestions that Treasury Secretary Timothy Geithner forwarded to Congress.
His 88-page prescription is replete with poisonous references to mortgage brokers, credit card bankers, regulator shoppers and investment bankers, and the abuses they promulgated on the financial system and consumers.
Search for “financial planner,” however, and you will draw a blank.
As for that most consuming of issues for the planning industry — whether it can fend off the Financial Industry Regulatory Authority Inc. and persuade Congress to let planners be regulated by the Certified Financial Planner Board of Standards Inc. of Washington — the document offers little evidence that planners' concerns are on the administration's radar.
“Can't answer that,” Mr. Geithner said when asked about the issue at a press conference last week.
Quite appropriately, the administration's proposal focuses on solutions to the lack of controls and oversight in the mortgage, credit and securitization markets that brought the financial system to the brink last fall.
If Congress accepts the plan in its broad outlines, there will be no more thrift charters, banks will be obligated to promote plain-vanilla credit products, a new agency will have a big say over credit cards and other retail products, and hedge funds, mortgage brokers and other footloose “financial intermediaries” will have to register with an appropriate regulator. No wonder the American Bankers Association of Washington already has come out fighting against the plan.
Mr. Geithner urged Congress to let the Federal Reserve Board oversee systemically important financial institutions (not identified but widely assumed to include the likes of Citigroup Inc. and Bank of America Corp.). He also would demolish the Office of Thrift Supervision, under which mortgage mills such as Countrywide Financial Corp. thrived, and would require hedge funds to register with the Securities and Exchange Commission.
Significantly for the world of Main Street investors and consumers, the administration proposes a new Consumer Financial Protection Agency with broad powers aimed at insulating the public from “financial abuse.” It would impose “appropriate duties of care on financial intermediaries ... reduce gaps in federal supervision and enforcement, improve coordination with the states, set higher standards for financial intermediaries and promote consistent regulation of similar products,” according to Mr. Geithner's outline.
The agency even would have the authority to restrict or ban mandatory-arbitration clauses in loan documents, but it wouldn't have much say over brokers and advisers.
Dan Barry, the Washington-based director of government relations for the Denver-based Financial Planning Association, has some concern that a new agency could add to “the patchwork of product regulation” since the Department of the Treasury says its proposal is meant as a regulatory “floor, not a ceiling,” and would supplement the supervisory role of state regulators.
He applauded the proposal's intent to subject “financial intermediaries” to a standard-of-care requirement but said it remains to be seen to whom those standards would apply. At one point, the document loosely defines intermediaries as mortgage brokers, consumer debt collectors and debt buyers.
David Tittsworth, executive director of the Washington-based Investment Advisor Association, similarly wonders to whom the Treasury Department is referring when it makes references to protections required for “retail investors.” He said he is eager to see the legislative language the Treasury Department will provide Congress to help “harmonize” oversight of brokers and advisers.
But the proposal, in many ways, leaves brokers and registered advisers squarely where they began — under the watch not of the new consumer agency but of the Securities and Exchange Commission, which the Obama administration hopes to give even broader investor protection powers than it now wields. Registered representatives are likely to be particularly concerned since the proposal seeks legislation to subject brokers who provide investment advice to the same fiduciary standard of care as advisers. “Current laws and regulations are based on antiquated distinctions between the two types of financial professionals,” the document states.
While that may be a slap in the fact to the SEC's earlier attempts to exempt brokers from fiduciary standards, it's also a strong vote of confidence. And since SEC members Elise Walter and Kathleen Casey, together with Chairman Mary Schapiro, have recently made positive comments about self-regulation, it may suggest that Finra of Washington and New York may emerge as the next regulator for financial planners.
E-mail Jed Horowitz at [email protected].
