Early Easter Development: Regulatory Reform Resurrected


This post by Jill Schlesinger originally appeared on CBS' MoneyWatch.com.



Regulatory reform is not dead. Senator Christopher Dodd desperately wants to salvage his reputation with a bill, but has run into a massive lobbying effort by the financial industry. But this morning, the WSJ reported that regulatory reform has been resurrected in the Senate, replete with a Consumer Financial Protection Agency (CFPA).

(CBS)

Before Elizabeth Warren fans start the celebration, the purported negotiated bill-inprogress would not create a stand-alone, independent agency, but would put the CFPA within the Fed. (This must cause Dodd great pain, since it was his intention to reduce the Fed's power, but that's what negotiation is all about!) Although living inside the Fed, the deal would empower the CFPA to oversee rules on a variety of financial products, including credit cards, bank fees and mortgages. It's not yet clear whether the rules would apply to non-bank financial institutions, like insurance companies.

Unfortunately, there's nary a mention of my pet reform peeve: the rule to extend the fiduciary standard to all financial service professionals. Early in the regulatory reform process, I was hopeful that the government would finally mandate that stockbrokers, insurance agents and any other financial advice-giver be FORCED to put their clients' needs first.

As Jason Zweig pointed out in the WSJ last weekend:
Securities salespeople generally aren't obligated to act in your best interest. They needn't tell you that they make extra money pushing one particular investment or that cheaper alternatives might provide you a higher return. Suppose two mutual funds are "suitable," but one of them pays the broker a fatter fee. You may well end up in that one-without finding out that your broker had an incentive to favor it.


When I tell people that brokers are under no obligation to act in the best interest of their clients, they look at me like I'm crazy. In fact, it IS crazy and that's why it's disheartening that lawmakers seem to have left the fiduciary standard on the cutting room floor. Now consumers are left with one choice: to ask every financial professional the following question: "Are you registered as a fiduciary?" If the answer is no, everyone would be wise to thoroughly analyze every broker/agent recommendation.

I've been worrying that the window of opportunity for meaningful regulatory reform has passed. We needed leadership a year ago, when the crisis was in full swing and the government had leverage. Instead, banks recovered, made money and blocked the process at every turn. While we may get some pieces in the latest Senate effort, it's clear that the bar has dropped well below where it should be.

More on MoneyWatch:
Tax Tip: Do This One Thing First
Tax Tip: Beware Estate Tax Surprise
No Salvation? Man Seeks Refund from Scientologists
Analyst: Deeper Correction on the Way
Automakers Offering 'Secret' Warranties
Got a Money Question? Ask Us Now


(CBS)
Jill Schlesinger is the Editor-at-Large for CBS MoneyWatch.com. Prior to the launch of MoneyWatch, she was the Chief Investment Officer for an independent investment advisory firm. In her infancy, she was an options trader on the Commodities Exchange of New York.
  • Jill Schlesinger On Twitter»

    View all articles by Jill Schlesinger on CBS MoneyWatch »
    Jill Schlesinger, CFP®, is the Editor-at-Large for CBS MoneyWatch. She covers the economy, markets, investing or anything else with a dollar sign. Prior to the launch of MoneyWatch in 2009, Jill was the chief investment officer for an independent investment advisory firm. In her infancy, she was an options trader on the Commodities Exchange of New York.

Comments

CBSN Live

pop-out
Live Video

Market Data

Watch CBSN Live

Watch CBS News anytime, anywhere with the new 24/7 digital news network. Stream CBSN live or on demand for FREE on your TV, computer, tablet, or smartphone.

Market News

Stock Watchlist