Due Diligence

For Some, Dodd-Frank Is A Big Step Forward; For Others Road is Long

It's easy to complain about what the final Dodd-Frank bill is not. Every piece of legislation ever crafted contains big compromises, and this one is no exception. But there are some major investor and consumer protections advanced in the bill that represent an achievement, even if the bill failed on, well, too big to fail, and other measures. That said, the final reach of this bill for consumers and financial advisors, if it passes, will be largely determined by regulators like the SEC.

"Whether or not it represents a net 'win' or 'loss' remains to be seen," says David Tittsworth, executive director of the Investment Advisor Association. "Going forward, it seems likely that the legislation will result in a wide range of new regulations that could increase the complexity and burden of compliance for all advisory firms. The legislation sets some parameters for certain issues, such as 'harmonization' of broker-dealer and investment adviser regulations, but the real-life impact will largely depend on how the SEC implements the legislation," he says. "At a minimum, it seems likely that investment advisers will be the subject of greater scrutiny by the SEC. Raising the $25 million threshold to $100 million alone will result in a significant reduction in the number of SEC-registered investment advisers subject to SEC oversight. And other critical questions, such as whether an SRO is warranted, will be the subject of study and potential future action."

So who does support it? Who accepts that it has limitations and drawbacks but would prefer the bill to pass when the Senate gathers for a vote after July 4th, rather than scrapping the whole thing and starting over? Consumer protection groups like the Consumer Federation of America and the AARP, to start.

“You can find something to criticize in every title in the bill," says Barbara Roper, director of investor protection at the Consumer Federation of America. "You can bemoan the fact that it doesn’t do more to bring about the kinds of structural changes in the banking industry that would keep banks from becoming too big to fail. But overall we strongly support passage of this bill...If you did nothing but pass the derivatives title, that would be a huge benefit. If you did nothing put pass the title that relates to bureau of consumer financial protection, if you did nothing put pass the investor protection title, that would be huge. So does this address every problem that contributed to the financial crisis? No. But does it provide meaningful protections for consumers and investors? Absolutely, and we strongly support its passage.”

AARP, too, came out in public support for the bill Wednesday after it was passed by the House, calling it "critical" financial reform legislation. “AARP supports this legislation because it will establish a watchdog that will protect Americans from getting a mortgage or credit card that has hidden fees that cause their bills to skyrocket; ensure Americans get the clear, accurate information they need to shop for mortgages, credit cards and other financial products; and crackdown on investment scams targeted at older Americans," wrote AARP CEO A. Barry Rand in a public statement.

Other supporters include The Financial Planning Coalition (made up of the CFP Board of Standards, NAPFA and FPA), The Fiduciary Committee, Fi360 and NASAA, which favors measures that strenthen investor protection and give a stronger investor protection role to the states. NASAA cites the following measures:

  • Adjust the definition of an “accredited investor” by removing the primary residence from the $1 million net worth standard;
  • Include “bad boy” disqualifier language to prevent recidivist violators of the law from conducting securities offerings under SEC Regulation D, Rule 506;
  • Provide the SEC with rulemaking authority to prohibit or impose conditions or limitations on the use of mandatory predispute arbitration agreements;
  • Create a grant program for up to $500,000 for a state that has adopted the NASAA and NAIC Model Rules on the Use of Senior Designations; and
  • Include a state securities regulator as a member of the SEC’s Investor Advisory Commission.
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