Legislation Proposed to Regulate Financial Advisors

Congress continues to mull over the issue of setting new standards for financial advisors, and all similar labels for those who provide investment advice. Proponents of this move are beginning to doubt that it will emerge as legislation focused on protecting American investors, who are often not able to identify where their advisor’s loyalties and motivations lie. One of the factors in investment decision making is the matter of commissions paid to advisors. Generally commissions are paid to brokers and advisors for each transaction that takes place – no transactions, no commission, whereas multiple transactions adds up to plenty of money. Commissions are either paid by the investor or by the company whose product the advisor is selling, or sometimes even both.

The limits of self-serving practices by advisors, and level of disclosure to investors are somewhat fuzzy, with many investors not having a clear understanding of their rights. The financial protection legislation addresses these issues by setting standards in the best interests of investors, by which advisors and brokers (often interchangeable terms) must abide. Observers are concerned that the Senate Banking Committee, under the leadership of Chris Dodd, is dragging its heels with regard to passing legislation. There is speculation that the Committee is entertaining the idea of setting the Securities and Exchange Commission (SEC) the task of conducting a study of current regulations over the next eighteen months, with a view to proposing changes. Furthermore, there have been reports that the Consumer Financial Protection Agency, which would have been an independent supervisory body, is likely to be included under the umbrella of the Federal Reserve, which has a dismal record of protecting individuals. To many in the know, this does not bode well for protecting the interests of consumers and investors, who are, after all, significant contributors to the economy.