Three years after it was enacted, the Dodd-Frank financial reform law has yet to have an impact on most investment advisers.
Signed by President Barack Obama on July 21, 2010, the measure was the most sweeping overhaul of financial regulation since the Great Depression. The section of the bill targeting investment advice gave the Securities and Exchange Commission the authority to raise standards for brokers but didn't mandate a rule.
In the years since, the SEC produced a study recommending a uniform fiduciary standard for anyone providing retail investment advice. It is conducting a cost-benefit analysis of potential regulation.
But the controversial issue remains on the sidelines as the SEC tackles its nearly 100 mandatory Dodd-Frank rule makings.
As of July 15, deadlines had passed for 279 of 398 required Dodd-Frank rules, according to a study by Davis Polk & Wardwell LLP. Regulators have failed to promulgate final rules in 172 of those cases, while 107 rules have been finalized.
“We're still waiting on so much,” said Barry Glassman, president of Glassman Wealth Services LLC. “I thought we would have far more clarity on what Dodd-Frank means to our business. One of the biggest components of Dodd-Frank [for advisers] is still up in the air.”
THE SWITCH
Under Dodd-Frank, about 2,400 investment advisers with assets under management between $25 million and $100 million transitioned from SEC registration to state registration.
At the same time, about 1,500 advisers to private funds registered with the SEC. The change in the SEC's oversight mix was designed to allow the commission to better monitor potential systemic risks posed by private-equity and hedge funds.
For financial advisers not making the so-called switch, professional life has continued as normal under Dodd-Frank.
“To me, the impact has been almost nothing,” said Brent Perry, president of Piedmont Financial Advisors LLC, who is regulated by the state of Indiana.
In fact, Dodd-Frank has been a non-event for most of his adviser friends in professional organizations such as the Alliance of Cambridge Advisors and the National Association of Personal Financial Advisors.
“I don't hear too much complaining about Dodd-Frank, whether they're SEC- or state-registered,” Mr. Perry said.
The situation has been different for Randy Warren, chief investment officer of Warren Financial Service & Associates Inc. In addition to the RIA side of his business, he runs two hedge funds.
The Dodd-Frank law mandates that such investment pools be subject to annual reviews by major public accounting firms.
“The additional cost of having those funds audited is significant,” Mr. Warren said. “That's literally money out of my pocket.”
Marc Turner, managing director of Renaissance Advisory Group LLC, has seen a positive intangible effect of the financial law.
“The Dodd-Frank Act helped restore responsibility and accountability in our financial system, which gives our clients confidence that there's a system in place that works for them and protects them,” he said.
NO IMPACT ON CLIENTS
As investment advisers wait for an SEC decision on whether to advance a fiduciary-duty proposal, they say that the outcome — even if it is the watered-down standard many fear — won't change the way they interact with clients.
“It's really not going to impact what we do, because the way we've done business for nine years is with the highest fiduciary responsibilities in mind,” Mr. Turner said.
The next year remains a concern.
“We wonder about the rest of Dodd-Frank,” said Carl Monson, a partner at Strategic Wealth Management Advisors Inc.
“I see it as a problem out there,” he said. “It keeps everything on edge.”
