New oversight for financial planners may be tougher for Senators to vote against because it is seen as pro-consumer

March 19, 2010 — 7:32 PM UTC by By Sara Hansard


In an attempt to diminish opposition to an amendment requiring financial planners to be regulated by a new oversight board, Sen. Herb Kohl, D-Wisc., has revised a proposal he plans to introduce when financial service reform legislation comes before the Senate Banking Committee next week.

The new version of Sen. Kohl’s “Financial Planners Act” draft legislation, released Thursday night, now stipulates that financial planners covered by a proposed Financial Planner Oversight Board are people who hold themselves out to the public as financial planners. To read the amendment, click here

An earlier version of Kohl’s proposal drew fire from a number of groups, including the Investment Adviser Association, state regulators, and brokers and insurance agents, who argued that it would add new layers of regulation to their industries. For more on that, read Proposal would sweep RIAs, planners, brokers into one huge regulatory pool

Neil Simon, vice president of government relations for the Investment Adviser Association, would only say that IAA is still “looking at” the new version of the Kohl amendment.

The new version defines financial planners to be those who hold themselves out to the public as financial planners, those who provide financial plans, or anyone who the Securities and Exchange Commission, which would oversee the Financial Planning Oversight Board, determines should be covered.

The revised legislative draft stipulates that investment advisers, broker-dealers, their representatives, insurance agents, lawyers, accountants, engineers, teachers or publishers would not be considered financial planners simply because they consider income tax, education, retirement, estate or risk management issues in providing when they recommend products or provide advice or other services in the course of their professional work.

Those categories of financial planning work had been an issue in the earlier draft, as federally regulated investment advisers argued that they typically do several of those activities in providing investment advice.

Too pro-consumer to oppose?

Though the revisions may help ameliorate some opposition, the amendment is still a long shot, especially because of the opposition of the brokers and insurance agents. However, one official following the issue, who would not speak for attribution, said it may be difficult for broker and insurance groups to prevail against this amendment because committee members may not want to be viewed as being against more consumer protection provisions.

Planners, including RIAs who held themselves out as such, would be covered by the new Financial Planner Oversight Board, which would “protect investors and other consumers of financial planning services and the public interest,” under the language in the draft legislation. The new board would regulate an estimated 75,000 financial planners.
Marilyn Mohrman-Gillis, managing director of public policy for the Certified Financial Planner Board of Standards Inc., held out hope that the new language will address concerns of the earlier draft, and she expressed hope that Kohl will win approval of the amendment.

“This would be establishing a common sense pro-consumer regulation of financial planners to close a regulatory gap,” she said. TheCFP
Board, the Financial Planning Association, and the National Association of Personal Financial Planners, who have formed the Financial Planning Coalition to push for federal regulation of financial planners, support the Kohl amendment.

Sorting out state regulation

To address concerns by state regulators that they would be pre-empted from regulating investment advisers under their jurisdiction, the new language states that investment advisers regulated under state law by state securities regulators would continue to be regulated by the states and states would have anti-fraud authority over financial planners.

However, the legislation also says that registered financial planners would be exempt from any state law that “requires a person to be licensed, registered or qualified to perform a service necessary to the conduct of the business of a financial planner, or regulates in any manner the conduct or standards for performance of a service necessary to the conduct of the business of a financial planner.”

The North American Securities Administrators Association Inc. did not return calls for comment on the legislation.
The proposed legislation states the oversight board would “promote adherence by registered financial planners to a fiduciary standard,” and planners would be required to disclose possible conflicts of interest and the compensation they receive. The oversight board would establish standards for planner qualifications and ethics, and it would have authority to sanction planners that violate its rules or other SEC rules or securities laws.

A majority of the members of the governance board of the planner oversight board would have to be representatives of consumer interest, and they could not be financial planners or people affiliated with investment advisers, broker-dealers or insurance companies. At least one member would have to be a representative of state securities regulators.

A key issue will be whether brokers and insurance agents will again be able to rebuff the Kohl amendment as they did with an earlier proposal by Senate Banking Committee Chairman Christopher Dodd, D-Conn., that would have required all brokers who give advice to be regulated as investment advisers. That provision has been replaced in Dodd’s new draft bill with an amendment by Sens. Tim Johnson, D-S.D., and Mike Crapo, R-Idaho, under which the SEC would be required to enact new regulations governing brokers and advisers after studying the issue.

Plenty of opposition

The Financial Services Institute Inc., which represents dually-registered broker-dealer/investment advisers, opposes the provision. “Financial planning should not be regulated as a distinct profession,” general counsel and director of government affairs David Bellaire wrote in an e-mail. “Planning is simply a prelude to the offering of specific investment advice and/or the implementation of solutions to financial problems through the execution of insurance or securities transactions,” he wrote.

Financial planning is already regulated under the Investment Advisers Act and SEC regulations, Bellaire wrote, and the proposed provision would subject many investment advisers to duplicative and potentially contradictory regulations. The new proposal would still sweep in nearly all financial advisers, registered representatives, insurance agents and many other professionals under the new self-regulatory organization, he maintained.

“Creating a new SRO for a subset of registered investment advisers will create additional regulatory gaps to be exploited by those who may do investors harm,” Bellaire wrote.

American Council of Life Insurers spokesman Whit Cornman echoed some of Bellaire’s themes. Cornman wrote in an e-mail that new standards on brokers and investment advisers who provide personalized advice about securities to retail investors should not impede providing investment advice to investors across a broad economic spectrum. Brokers have argued that forcing brokers to be investment advisers would limit advice to middle class investors by raising costs.

New standards for brokers and advisers “should not add additional, duplicative and excessive layers of regulation on brokers, dealers or investment advisers who sell, among other things, variable products without any meaningful additional enhancements to investor protections. Consideration should be given to laws, regulations and oversight already provided by state securities departments, the SEC and FINRA,” Cornman wrote.

Mentioned in this article:

Investment Adviser Association
Top Executive: David G. Tittsworth

Financial Planning Association
Top Executive: Lauren S. Schadle, CAE, Executive Director and CEO

National Association of Personal Finance Advisors
Top Executive: Ellen Turf

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