But not all of them would be a hindrance. The new regulations that could have the most influence include the Volcker Rule, under the Dodd-Frank Wall Street Reform and Consumer Protection Act, and a possible uniform fiduciary standard, which would hold both brokers and investment advisors to the same standards of care when providing investment advice.
For instance, SIFMA, the Securities Industry and Financial Markets Association, a financial services industry advocacy organization, supports a uniform fiduciary standard. But SIFMA Executive Vice President Randy Snook slammed the potential impact the Volcker Rule, which aims to regulate investments more closely, could have on the industry.
“I am particularly concerned with the Volcker rule, which would drastically reduce market liquidity, increase price volatility, increase cost of capital, [and] increase cost of funds for corporate America. This proposal will have far-reaching consequences,” Snook said. “It will certainly impact private wealth managers, their clients and individual investors.”
The Volcker Rule could negatively impact investing in bonds by leading to the creation of a two-tiered market for municipal bonds while also reducing liquidity for some corporate bonds, Snook said. It could also impact mutual fund investing, he said, by reducing the underlying liquidity that is part of those funds.
The concerns come as Dodd-Frank is set to hit its two-year anniversary this year. As of now, about 100 of more than 400 rules have been finalized. SIFMA has filed more than 140 comment letters regarding its views on the pending legislation with regulators.
SIFMA is against measures that it perceives could increase systemic risk or could reduce market function, Snook said. But the organization also supports a number of other regulatory measures, including the establishment of a systemic risk regulator, the designation of bank and non-bank firms and the support of risk retention and other measures to help improve consumer confidence in the securitization market.
SIFMA also supports a uniform fiduciary standard, which certain other wealth management executives also voiced support for at the conference in Boston on Wednesday.
John Taft, chief executive officer of RBC Wealth Management, U.S., said a uniform fiduciary standard is so critical for the industry to have right now, and would represent the highest possible form of investor protection.
“I think that will be a watershed moment in the history of the private client industry,” Taft said of the impact of the possible creation of a uniform standard. “I hope we get there sooner rather than later.”
Chet Helck, executive vice president of Raymond James Financial and CEO of the Global Private Client Group, argued that many financial advisors are already putting their clients’ interests first, which already makes them a fiduciary.
As to whether a fiduciary standard can be applied to the broker-dealer business model, which is rooted in manufacturing, Helck said it could be done. Financial advisors should be allowed to represent products and services, he said, as long as clients understand the terms.
What will define the success of any new fiduciary rule for the industry the most, Helck said, is how much flexibility it gives advisors to put their clients’ interests first.
“An industry that delivers to its marketplace, that which the marketplace wants, will be rewarded with success,” Helck said. “And those industries which fail to do that will be replaced by others who will.”
Lorie Konish writes for On Wall Street.