Advisers on reform bill: Some good, a lot bad

Jun 25, 2010 @ 4:08 pm

By Lisa Shidler

Financial advisers had mixed reactions to the final version of the financial-reform bill, which was hammered out by Congress earlier today.

“I'm not sure it does anything to address how the last crisis happened and to prevent another one from happening,” said J. Preston Byers, an adviser with ClearBridge Wealth Management, whose firm manages about $120 million in assets. “To me, it was a rushed bill and the administration needed a win.”

In the deal, lawmakers softened a proposal regarding fiduciary obligation. Nevertheless, the bill empowers the Securities and Exchange Commission to write regulation requiring brokers-dealers to act in the best interests of their clients

The issue regarding fiduciary language is a significant win for financial advisers, said Tom Potts, an adviser and president of the Financial Planning Association.

“It makes the standard of care for clients more consistent,” he said. “This will help restore confidence to the public and will ultimately be very positive for advisers.”

Others thought the wording in the section on fiduciary standards could have been more forceful, said adviser Richard Feight, an adviser and owner of IAM Financial LLC, whose firm manages about $10 million in assets. “It felt like it was put on the backburner,” he said. “Why can't they can just put it more strongly in the bill.”

Adviser Samuel R. Scott, president of Sunrise Advisors, which manages about $175 million in assets, wrote in an e-mail that he also believes the language should have been stronger.

“One area that was noticeably absent was the decision on whether or not to require all investment professionals to abide by a fiduciary standard of care,” he said. “This is unfortunate.”

Another hot button issue in the legislation is a measure that sets up rules outlining over-the-counter derivates through third-party clearing houses and onto regulated exchanges. This makes it easier for the market to track the trades.

Such transparency is desperately needed in the industry, said Diane Young, president of The Athena Group Ltd. of Rochester, Mich., which manages about $25 million in assets.

“Personally, I think it's sad we have to regulate ethics in our industry but unfortunately we have to,” she said. “Transparency on those derivates to me is huge because people were out there doing very dangerous things.”

But independent adviser Frank Congemi with LPL Financial who manages about $100 million in assets, can't find anything in the legislation that he believes will help investors.

“It's another abomination. It's another disaster,” he said. “I'm sure there's going to be lots of unintended consequences in there.”

He feels that the legislation missed the mark and predicts this bill won't prevent another financial disaster from occurring in the future.

“These senators aren't being sensitive to my clients who are still unprotected,” he said. “This is just window dressing.”


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