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GAO report says planners do not need new regs

Financial planners are sufficiently regulated under current federal and state laws to protect consumers, but some consumer protection issues remain, a government report released last week concluded

Financial planners are sufficiently regulated under current federal and state laws to protect consumers, but some consumer protection issues remain, a government report released last week concluded.

The Jan. 18 report to Congress from the Government Accountability Office, one of 44 reports the GAO must complete in 2011 under provisions of the Dodd-Frank financial reform law, was greeted with relief by investment advisers, who face rules taking effect this year and do not relish the prospect of more.

“Adding another layer of regulation for financial planners is not the answer,” said David Tittsworth, executive director of the Investment Adviser Association. “We support better coordination among existing regulators.”

DISAPPOINTED

The GAO report said that while consumers may be confused by the current regulatory scheme — under which the Securities and Exchange Commission regulates most activities of financial planners under its investment advisory responsibilities and through other rules when planners act as broker-dealers or insurance agents — it is sufficient to protect investors.

A trio of financial planning groups was disappointed that the report did not call for increased regulation of financial planners, which they said would better protect consumers.

Despite its disappointment, the Financial Planning Coalition — which includes the Certified Financial Planner Board of Standards Inc., the Financial Planning Association and the National Association of Personal Financial Advisors — expressed optimism about the several reviews that the GAO recommended in the report.

“We’re encouraged that as the SEC does other rulemaking over the course of the next year or two, they could and should incorporate considerations of financial planning as a profession and the standards for financial planning,” said Ron Rhoades, a spokesman for the Financial Planning Coalition and chief compliance officer at Joseph Capital Management LLC, which manages about $100 million.

The GAO report recommended that the National Association of Insurance Commissioners review whether investors understand the “standards of care” under which agents operate — how far financial professionals are required to go to protect client interests — with regard to sales of such products as annuities. The NAIC also should “take actions as appropriate to address problems revealed in this assessment.”

STANDARD OF CARE

Consumer groups worry that high sales commissions on annuities and other insurance products may encourage brokers to recommend products that are not in their clients’ best interests, the report said.

The NAIC told the GAO in a Jan. 10 letter that its state insurance regulators will discuss this issue “during our 2011 deliberations.”

NAIC spokesman Jeremy Wilkinson would not elaborate.

The GAO report also suggested that the SEC look into whether investors understand the alphabet soup of designations and titles used by the financial planning industry and whether a lack of understanding of these designations affects their investment decisions.

The “study is an important first step at increasing consumer financial protection,” said Paul Auslander, chief executive of American Financial Advisors Inc. and incoming president of the FPA.

E-mail Liz Skinner at [email protected].