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.
Bridging Main Street and Wall Street is one of the big initiatives youve talked about, particularly when it comes to lending. How can advisors make sure theyre 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 thats risk-free in this world, especially in the area of investment. But youre trying to do the best that you can to give them reasonable returns built around what they want and need. Thats just common sense, but its 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.
Where do you stand on the fiduciary standard? Do you have any thoughts on whos best suited to oversee both investment advisors and broker-dealers?
Its 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 were 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 dont know yet whos actually going to end up controlling that final product. But its important that the final product do two thingsprotect the investor and give the investor choices.
Are you partial to either the SEC or FINRA for that role?
I have not been in the job long enough. I really cant say. Traditionally, it would be the SEC, I think. But if FINRA wants to take a role and its constructive, well certainly try to be helpful.
What is Dodd-Franks 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, its probably contracted credit. The purposes of Dodd-Frank were goodto 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 its a heavy lift. SIFMAs 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 Americas capacity to compete and be prosperous.
So many of Dodd-Franks rules are still unwritten. Where do you see the most issueswith whats written or whats unwrittenand where does SIFMA plan to advocate?
Were 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. Its a pretty complex exercise. Its the most significant regulatory change in the history of the financial system. Its 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. Youre already seeing some contraction occurring. With the financial institutions not knowing how to deal with these issues, they simply throw up their hands and dont lend aggressively or supply capital. The second is our international competitiveness. We cannot risk one of our greatest strengthsour capital markets. Weve got to be careful.