Five Questions with Judd Gregg

SIFMA, a trade group composed of banks, broker-dealers and asset management firms, tapped Judd Gregg in May to serve as chief executive. Here, the three-term U.S. senator from New Hampshire talks with Managing Editor Lorie Konish about what still needs to be done to restore investor confidence in the financial markets.

1. Bridging Main Street and Wall Street is one of the big initiatives you've talked about, particularly when it comes to lending. How can advisors make sure they're part of the movement toward responsible lending and sale of products?
Above all, be honest and transparent with your clients. Give them your best opinions, but make sure they understand they are only opinions. There is nothing that's risk-free in this world, especially in the area of investment. But you're trying to do the best that you can to give them reasonable returns built around what they want and need. That's just common sense, but it's very important to communicate that, because individuals who are investing and who are putting money into 401(k)s or IRAs need to feel that the folks who are advising them are on their side and are there to protect them and to invest effectively for their unique situation. This is obvious, I guess, but it needs to be restated and reaffirmed with clients one on one, because there has been this difficult period in the market and people do have questions.

2. Where do you stand on the fiduciary standard? Do you have any thoughts on who's best suited to oversee both investment advisors and broker-dealers?

It's an incredibly important issue. The entire industry wants a good fiduciary standard. We want to be able to say, "This is what guides us," when we're dealing with clients. The Department of Labor is not the agency to do it, in my opinion. The SEC or potentially FINRA {have each said} they are going to go into the business. We don't know yet who's actually going to end up controlling that final product. But it's important that the final product do two things-protect the investor and give the investor choices.

3. Are you partial to either the SEC or FINRA for that role?
I have not been in the job long enough. I really can't say. Traditionally, it would be the SEC, I think. But if FINRA wants to take a role and it's constructive, we'll certainly try to be helpful.

4. What is Dodd-Frank's role in restoring the financial system?
It has basically been an excessive exercise in regulation and probably not constructive to getting credit to Main Street. In fact, it's probably contracted credit. The purposes of Dodd-Frank were good—to end too big to fail, to make sure taxpayers' money was not at risk, to protect the individual investor. Unfortunately, it was a classic legislative situation, where Congress was supposed to produce a horse and ended up producing a mutated camel. The regulators have been given a very difficult task. I credit them for trying very hard to get it right. The language in many places is not clear. In some places it is contradictory and in other places, just wrong. The regulators are trying to accomplish what Congress really intended to do here. But it's a heavy lift. SIFMA's role is to be a constructive player, to give input, to show what the consequences will be of this proposal or that proposal on the consumer, on Main Street, on credit and capital availability for America and on our competitiveness as a nation compared with other countries. We want to be a fair broker and state how regulation will impact the economy and America's capacity to compete and be prosperous.

5. So many of Dodd-Frank's rules are still unwritten. Where do you see the most issues—with what's written or what's unwritten—and where does SIFMA plan to advocate?
We're going to advocate for having the rules promote stronger capital markets, protect the consumer and keep America competitive internationally. Some of the proposed rules are not well thought out, such as the language about swaps that came out of the CFTC and is contradictory to other agencies' proposals. It's a pretty complex exercise. It's the most significant regulatory change in the history of the financial system. It's going to take a long time to sort through. The unintended consequences are significant and numerous. The most dangerous is that we affect the availability of capital and credit on Main Street. You're already seeing some contraction occurring. With the financial institutions not knowing how to deal with these issues, they simply throw up their hands and don't lend aggressively or supply capital. The second is our international competitiveness. We cannot risk one of our greatest strengths—our capital markets. We've got to be careful.

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