The U.S. Senate and the House of Representatives begin this week to meld their respective bills on financial reform – a massive regulatory overhaul that could impact everything from how you get credit cards or mortgages to how you pick a financial advisor.
At first glance, you might think that all of Wall Street is opposed to financial reform. After all, since January 2009, financial services firms have doled out nearly $600 million to hire lobbyists and fight reform, according to the Center for Responsive Politics.
While it's clear that many U.S. bankers oppose sweeping changes to the financial services industry, there is a large contingent of those in the financial-advice business who are begging for big reforms and more regulation: financial planners.
The Financial Planning Association, the National Association of Personal Financial Advisors and the CFP Board of Standards are all supporting a plan to create tougher standards for financial planners and put them under the authority of the SEC.
The proposal, from Senate Banking Committee member Herb Kohl (D-Wisc.) is included as an amendment to the committee's existing financial reform bill, according to David Mendels, CFP and President-Elect of the New York Chapter of the FPA. "We're thrilled to know that it's made it this far," Mendels said.
Under the proposal: the country's estimated 100,000 financial planners would be required to act as fiduciaries, revealing how they are compensated, having no conflicts of interest in their recommendations, or at least disclosing to clients any conflicts, such as advisers earning commissions based on certain recommendations.
"It's really about protecting the consumer," said Kathleen Piaggesi, CFP and Director of Government Relations for the FPA of New York. "We want to establish competency standards, practice standards, ethical guidelines, disciplinary authority and transparency for consumers."
If this proposal and other protections for consumers and taxpayers make it into the final legislation that is passed – after the Senate and the House reconcile their different versions – financial reform can't come quickly enough. But agreeing on how to make that happen will be tricky at best.
Already, several provisions hotly debated by lawmakers – and by some on Wall Street – have been dropped due to a lack of consensus. For instance, financial reform legislation proceeded to the Senate floor only after Senators dropped a proposed $50 billion "resolution fund" from the bill. The fund was originally designed to cover failing institutions and would have been paid for by fees charged to financial firms. But Republicans fought the fund, saying it would lead to endless bailouts, so that part of the financial reform bill was ultimately dropped.
Also, the bill in its present form calls for new efforts to provide financial literacy education to the public – something that seems like a no-brainer. But even this issue may draw opposition, mainly because a big bone of contention in the bill is likely to be who or what agency will be in charge of protecting the public's interests.
Currently, a hodgepodge of different government agencies regulate the financial goods and services that you and I buy. But under the Senate version of the financial reform bill, a newly-created Bureau of Consumer Financial Protection would pull all these agencies together.
This new bureau would become part of the Federal Reserve and would have an Office of Financial Literacy to boost Americans' money-management skills.
The bureau's sole mission would be to look out for your wallet, by ensuring that you have adequate disclosure and protection on everything from basic transactions in your checking account to complex investments you might buy. The bureau would also aim to shield you from financial abuses, deceptive tactics by financial firms or discrimination in lending.
Under the House version of financial reform, instead of being part of the Federal Reserve, this consumer protection bureau would be set up as a completely independent, stand-alone agency. This power struggle over who controls the consumer protection bureau (not to mention how widespread that bureau's authority would be) will no doubt loom large in the ongoing financial reform debate.
Whatever resolution that is reached, however, won't take too long to materialize. President Obama has indicated he'd like to sign a financial reform bill by the July 4 holiday. Lawmakers also adjourn July 4 for a week-long recess.
That means the next few weeks on Capitol Hill will be very busy – and full of political theater too. The hearings are slated to be televised on CSPAN, giving all Americans a peek into the public portions of the hearings and the voting of the conference committee negotiators.
For most of us, watching members of Congress spar doesn't top the list of must-see summer television. And although it's sometimes tempting to tune out political wrangling in Washington D.C., the showdown over financial reform is an issue none of us can afford to miss.
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