Dodd's revised bill a mixed bag for financial advisers

Sen. Christoper Dodd, D-Conn., today introduced his much-anticipated — and much-revised — bill for reforming the financial markets. The ‘‘Restoring American Financial Stability Act of 2010” draft bill runs well over 1,300 pages, but Title IX will be of most interest to financial advisers. In it, Mr. Dodd calls for a study by the Securities and Exchange Commission on whether brokers should be subject to the same fiduciary standard that applies to registered investment advisers. Under the bill, the SEC would have one year to report to Congress on what it finds and another year to implement any necessary changes. That proposal, first enunciated by Sen. Tim Johnson, D-S.D., a Banking Committee member, ended up replacing Mr. Dodd's original — and much stricter — idea to move ahead with applying the fiduciary standard to any broker who offers financial advice to clients. The Dodd bill was praised by Tim Ryan, president and CEO of the Securities Industry and Financial Markets Association. “We hope today's announcement by Senator Dodd brings us another step closer to enacting the reforms that are vital to strengthening our financial system, this year,” he said in a statement. “We remain committed to supporting responsible reform that balances stronger regulatory transparency and oversight with the industry's ability to finance America's economic recovery and job creation.” Insurance groups have fought hard against the fiduciary provision, arguing that it would be difficult for agents to operate on a commission-based model if they are held to the fiduciary standard, which makes selling proprietary products more complicated. In the past Mr. Johnson has sponsored legislation important to the insurance industry, most notably a bill that would create an optional federal charter for insurers. But some groups will no doubt be disappointed by Mr. Dodd's revisions. Many had expressed alarm over the past few months that calling only for an SEC study means that language in previous drafts that would requiring brokers acting as advisers to be registered investment advisers will never see the floor. “It's an unfortunate backsliding on the part of the banking committee,” said Mercer Bullard, president and founder of Fund Democracy Inc., a consumer group that has been battling to no avail to make a fiduciary standard of care applicable to anyone who offers financial advice. “This bill doesn't change the law. We need the law to be modified to provide that retail investment advice is subject to fiduciary duty, whether it's provided by a broker or not.” In addition, Mr. Dodd's bill takes a pass on a proposal from Sen. Herb Kohl, D-Wis., that would require all advisers who hold themselves out as financial planners to register with an oversight board administered by the Securities and Exchange Commission . A statement that Senator Kohl made indicated he is not abandoning his original effort to regulate financial planners. “Currently, there is no nationwide standard governing the fiduciary responsibilities of financial planners,” said Mr. Kohl, chairman of the Special Committee on Aging. “I will continue to work with Chairman Dodd in the coming weeks to enhance consumer protection and increase the accountability and oversight of this profession as part of regulatory reform.” Indeed, Sen. Dodd's revised legislation did offer some nods to consumer advocate groups. For starters, the bill seeks to establish an investor advisory committee that would report directly to the chairman of the Securities and Exchange Commission. The committee would be comprised of an investor advocate, a representative of state securities regulators, and up to 22 others. The investor advocate would be charged with, among other things, assisting retail investors in resolving problems they may have with the SEC or with self-regulatory organizations, and identify problems that investors have with financial service providers and investment products. The agency would be a "strong and independent consumer watchdog," Mr. Dodd said at a press conference today. He added that the investor advisory committee would have the "independence and authority to get the job done." In addition, the revised Dodd bill would ramp up protection to older investors. Mr. Kohl joined with other senators from the Special Committee on Aging today in praising that provision. The filing deadline for proposed amendments to the Dodd bill is Friday, according to a Senate Banking Committee staffer.