The initial reactions among financial services companies to the Dodd-Frank Wall Street Reform Act have been trepidation and fear.

This certainly was echoed in the opening address that David Seymour, partner and global head of investment management at KPMG, gave at the recent FundForum USA 2010 conference. His topic: the tremendous challenges facing the financial services industry post-crisis.

"Investment management organizations must make important changes due to changing regulations, industry restructuring, the need for additional risk controls and new operating models," he said.

According to Davis Polk estimates, he noted, the Dodd-Frank bill will result in 249 new rule-making procedures.

The mutual fund industry has resisted Congress getting involved in its sales practices, believing that they are best left to the Securities and Exchange Commission. Meanwhile, the hedge fund industry has fought against a new requirement for funds with $25 million or more in assets register with the SEC.

But with investors so shaken not just by credit markets and mortgage-backed securities but also by the equities markets-particularly following the May 6 Flash Crash-industry leaders are beginning to embrace reform as a new foundation.

At the Securities Industry and Financial Markets Association annual meeting last Monday, for example, the heads of private client service and capital markets firms voiced support for financial reform, saying it is needed to convince investors to return to the equities market.

"As an industry, we really do welcome financial reform," said James R. Allen, chairman and chief executive officer of J.J.B. Hilliard, W.L. Lyons LLC. Addressing regulatory reform in a fashion "that makes long-term sense" will restore consumer confidence in the financial industry so investors believe "this is a fair game," Allen said. "The most important job we have to do is restore trust and confidence" in orderly markets, agreed Chet Helck, chief operating officer of Raymond James Financial. Regulations left over from 1933, 1934 and 1940 need to be updated, he said.

U.S. investors have redeemed $100 billion from actively managed equity funds since 2009. Those investors are not coming back until they see better-run markets.

Which starts with reform.

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