New Financial Regulatory Reform Bill will Change The Way Business Is Handled

Written by Adam Peck Category: Injury Law January 16th, 2013 2 min read

While the administration is lauding the advancement of the Financial Regulatory Reform Bill and is expected to sign it into law next week, two key items of the bill actually will hurt the protection of consumers.

One element is that securities brokers will be held to a fiduciary standard enforced by the SEC, just as investment advisers are today. How could this hurt consumers one might ask?

First, the bill specifically allows brokers to earn commissions and sell proprietary products while acting as a fiduciary. Before the bill, fee-only fiduciary registered investment adviser’s only compensation was in the form of fully disclosed fees paid by the client leaving conflicted commission based brokers outside of the fiduciary standard. Now, the same brokers that peddled big commission products (or conflicted proprietary products) will be able to call themselves a fiduciary while they earn the same big fat conflicted compensation they have in the past. Although relatively few consumers really understood the difference between the two, at least some have grown to learn the difference. Now the consumer will have no easy means of discerning the difference between the them because the product peddler will be able to call himself a fiduciary too.

For a client to actually collect on a fiduciary breach requires expensive legal action. SEC Registered Fee- Only Investment Advisers had no financial incentive to breach their fiduciary duty so their actions were relatively self policing. But now there is a whole new army of brokers that will be fiduciaries too, except unlike an objective fee-only adviser these brokers will still be tempted by the bribe of a big fat commission. The result will NOT be a wholesale clean-up of brokerage firm activities. Instead, all it will create is a ton of fiduciary violations because they will continue to accept product commission bribes that are specifically allowed in the bill. The real ending result of this means nothing more than being a securities lawyer is going to become a HUGE growth industry.
The other provision in the bill that absolutely contradicts the notion of consumer protection is that Congress has specifically prevented the SEC from enforcing more disclosures for equity index annuities. The SEC has been attempting to have them treated as securities which are subject to many federal disclosure laws designed to protect consumers.

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Written by Adam Peck

Expertise: Personal Injury

Adam J. Peck, ESQ is a principal with Peck Law Group, APC. In 2008, Mr. Adam Peck received his Juris Doctorate from Whittier Law School where he graduated Cum Laude. His practice is primarily dedicated to representing Elders, Dependent Adults, along with their loved ones and family members, who have suffered horrific personal injuries.