WealthManagement Magazine

Congress Could Force Disclosure of Markups, Markdowns

An amendment to the financial restructuring bill (H.R. 10), which recently passed the House of Representatives, would require the disclosure of commissions, fees, markups, or other costs customers pay when they buy investment products.It is the intent of Congress that disclosure for consumers and investors be improved so that they can make informed decisions, says a statement accompanying the amendment,

An amendment to the financial restructuring bill (H.R. 10), which recently passed the House of Representatives, would require the disclosure of commissions, fees, markups, or other costs customers pay when they buy investment products.

It is the intent of Congress that disclosure for consumers and investors be improved so that they can make informed decisions, says a statement accompanying the amendment, which was offered by Reps. John Dingell, D-Mich.; Jim Leach, R-Iowa; and Thomas Bliley, R-Va. The Congress intends to give the financial regulators flexibility to achieve this goal through any effective means, including increasing the disclosure of prices for debt securities.

But the Securities Industry Association doesnt like that idea. In June testimony to the Senate Banking Committee, James Higgins, president and COO at Morgan Stanley Dean Witter and chairman of the SIA, urged the Senate to re-examine the amendment. Higgins complained that the item was added [by the House] at the last minute ... without holding hearings on the provision or providing the opportunity for thoughtful consideration. Regulators have sufficient authority to address these issues through their existing regulatory powers, Higgins said.

So far, though, the SEC and SROs have stopped short of requiring full disclosure of markups, markdowns and spreads, as well as a variety of other fees and support that product vendors provide to dealers.

The International Association for Financial Planning (IAFP) also has concerns about the amendment. We have a question about the fact that this creates an unlevel playing field, says James McIntyre, Washington, D.C., counsel for the IAFP. Some people in certain industries are not regulated at the federal level, and they would not have to disclose their fees, he says, such as some insurance agents or smaller investment advisers.

McIntyre is quick to point out that the 17,000-member IAFP is in favor of disclosure in general if and when it is fair.

Another financial planning organization, the 700-member National Association of Personal Financial Advisors (NAPFA), a group for fee-based professionals,is supporting the amendment.

NAPFA has always stood for full disclosure, so naturally were pleased with the bills passage in the House, says Susan John, vice chairman at NAPFA and principal of Financial Focus in Wolfeboro, N.H.

In June, the Senate Banking Committee held hearings on the bill, which was expected to be introduced to the full Senate after the July 4 recess.

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