Financial Reform Amendments Begin to Fly

Caveat Emptor

Let The Buyer Beware. This motto is prevalent in many corners of the financial services industry as it is in many other sales professions. It basically indicates that the sale of a product is a zero sum game. Either the salesperson "wins" if you purchase something (quality and need be damned) or the potential customer wins by not purchase. Caveat Emptor has no place in a trust based profession. A profession that has the ability to truly help people create better lives is not a zero sum game. Financial planners and advisors should sit on the same side of the table as clients. These professionals should be the individuals who help clients in the "buyer beware" trap. I am not certain that a financial planner or advisor who is also the primary product salesperson can appropriately take on this role. Is it possible to be truly objective about the review of financial products when one's livelihood is impacted by the sale of those same financial products? If two mutual funds are nearly identical but one does not pay a commission while the other does, can a financial advisor receiving the commission fairly compare the slight differences to determine which product will be in a client's best interest? I am not a strict believer in the fee-only compensation model and am far more concerned with the service being delivered by a financial advisor and where that advisor's commitments lie, but I do wonder if an individual receiving any form of commission can truly overcome virtually irreconcilable conflicts.

Amendments to the financial reform bill begin to fly

The first amendments to Senate financial reform bill have been submitted for consideration to the Senate. Many more are sure to arrive today and early next week. The first amendment brought to the Senate floor dealt with an outright ban of taxpayer funded bailouts of financial institutions. There is wide, bipartisan support to include language banning bailouts. Bloomberg provides a good analysis of this here. There are a couple other amendments worth bringing to your attention that could impact the financial advice you can hope to receive in the future.

Uniform Fiduciary duty – Senator Robert Menendez may submit an amendment designed to require all individuals providing investment advice to act in the best interest of their clients. This amendment would effectively remove the "suitability standard" used by many brokers who are not subject to a fiduciary standard. The suitability standard is a much lower bar and does not mean an individual is making a recommendation in your best interest. More details on this amendment can be found here.

Reintroduction of Glass-Steagall – Some commentary has pointed to the repeal of the Glass-Steagall Act as the beginning of the most recent financial crisis. This act had prohibited bank holding companies from owning other financial institutions. Commercial banks were basically barred from being involved in investment activities beyond their core banking activities as savings and lending institutions. This Act was repealed in 1999, which some have pointed to as having allowed the creation of "too big to fail" institutions. Senators Maria Cantwell and John McCain plan to push for reintroduction of Glass-Steagall provisions.

The best coverage of potential amendments I have found can be found in today's Washington Post here. More details will be available when the Congressional Report for yesterday's session is released later this morning. I will update this post to include a link to that document once available. (Link to report here.)

As always, if you feel so compelled please contact your Senators to urge them to require financial planners and advisors to work in your best interest and reduce the Caveat Emptor mentality. This is our chance to make a difference and to help you receive access to good, objective financial advice. To find contact information for your Senators, visit and select your state from the drop-down menu in the top right corner of the screen.

And enjoy your weekend! Spring is here...and summer is approaching!



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