While investors feel that some cautionary fences have gone up around the industry and some are more confident about working with financial advisors, the Dodd-Frank Act has not delivered substantial changes to the financial advisory industry since President Obama signed it into law almost a year ago.
It is a healthy start, but not much more. Aside from putting guard rails up around an industry that had spun wildly out of control, the Dodd-Frank Wall Street Reform and Consumer Protection Act has not delivered substantial changes to the financial advisory industry since President Obama signed it into law July 21, 2010.
That is understandable, because the legislation covers 848 pages in its final form. The Securities and Exchange Commission alone is responsible for adopting hundreds of rules affecting dozens of industries, from asset-backed securities, the locus of the initial economic meltdown to financial advisory.
“For planners and investment advisors, particularly retail investment advisors, the impact is to be determined,” said Dan Barry, managing director of government relations and public policy for the Financial Planning Association. “We are a year on, but some of the things that would affect them significantly are still in the process of being worked out.”
Consider the SEC’s rulemaking on applying the fiduciary standard to brokers and independent advisors:
In January, the agency released a groundbreaking study recommending that a single fiduciary standard be created for brokers and investment advisors. The agency is still weighing whether to expand it to all broker-dealers, stock brokers and insurance agents, regardless of what business model the firms follow.
“[SEC Chairman] Mary Schapiro has signaled it is something they have not been able to focus on yet, because of other deadlines,” Barry said. “With the one-year anniversary coming up, that could happen later this year. Late this year.”
The industry is also waiting to hear what Congress will decide about what kind of oversight investment advisors should be subjected to under Dodd-Frank. Should that group have a self-regulatory organization of its own, come under supervision from the Financial Industry Regulatory Authority, or something else?
“That has been part of the debate,” said Duane Thompson, senior policy analyst for Fi360, a fiduciary standard education and training firm. “The broker side says these [investment advisor] guys are lightly regulated. It’s one of the differences between a principals-based approach and a fiduciary one.”
The SEC has had to push back other deadlines because of its workload.
Advisory firms with between $25 million and $100 million of assets under management have been anticipating a switch to state regulation ever since Congress passed the Dodd-Frank Act. Originally, mid-and smaller-sized firms had until July 21, 2011 to declare whether they would remain with the SEC and make the switch.
But in April, the SEC said it favored extending the deadline, so that it can reprogram the Investment Adviser Registration Depository (IARD) system, to accept advisors’ transition filings.
Smaller firms, then, have gotten an extension from switching to state supervision, which will push their impact back by about six months.
While few substantial elements of doing business have changed for advisors, the financial services industry could have been much worse off if Congress had not acted when it did, Thompson said.
“Not everyone has even agreed on what caused the Great Depression and if the regulatory response to that was correct,” Thompson said. “People will still debate whether Dodd-Frank was the correct medicine.”
For their part, investors seem to think the legislation was worthwhile, according to Cathy Weatherford, president and chief executive officer of the Insured Retirement Institute.
“We saw a financial crisis among some of the largest and most respected financial institutions in America,” Weatherford said. “They had this tremendous loss of confidence.”
Americans now feel that there are some fences around the financial services industry, and there is a greater confidence in working with financial advisors, Weatherford said.
Some of the organizations’ research finds that about one quarter of baby boomers said they did not have confidence in ability now to meet retirement goals. The group that showed the least confidence: those in their 50s, in lower income to middle brackets, with no source of guaranteed lifetime income other than Social Security and who do not use an advisor.
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