House-Senate Conference Committee

The conference committee is working on a compromise bill of financial regulatory reform, consolidating the two very different bills that have passed the two chambers of our Congress recently.

The weekend edition of the Wall Street Journal portrrays the deliberations as tiring and tiresome. "After just four days, House Democrats and Republicans appear exhausted. Some have abandoned their jackets. When their Senate colleagues filter in, they sit across the table and stare at their House counterparts like children visiting the zoo."

One of the many issues that it is their duty to discuss is whether brokers are to have a fiduciary obligation toward their customers -- and, oif so, toward which customers. The House negotiators want to order the Securities and Exchange Commission to impose the standard, in the limited set of cases in which brokers offer “personalized investment advice about securities to a retail customer.” They would give the SEC the choiuce whether to extend that obligation to other customers.

Bloomberg's account portrays this as a make-or-break issue from the POV of the House negotiators, quoting Rep. Barney Frank (D-Mass.) “I cannot foresee us giving in on fiduciary responsibility for individual investors.”

Bloomberg also said, in a story on June 16, that Dodd was about to propose a counter-offer some day soon, to the latest House conferees' language on this point. I'm not aware that he has done so yet.

Rich Blake is predicting, with tongue in cheek (I think), that: "Financial reform will pass on Friday July 2, the last news day prior to the long Fourth of July weekend, with Obama, flanked by Senator Chris Dodd and a Republican, possibly Richard Shelby of Alabama, announcing 'America’s independence from Wall Street.'"

The Investor Protection Act of 2009

The Treasury Department has released (as of July 10) the administration's proposed Investor Protection Act of 2009. If enacted, it will implement parts of the financial-reform proposals contained in the recent White Paper.

Under existing law, there is an important difference between investment advisers on the one hand and broker-dealers on the other. Both can be held to certain standards in terms of the fiduciary and anti-fraud obligations, but the broker-dealers get to police themselves through self-regulatory organizations, which historically they have found quite comfortable.

The Fact Sheet included in the Treasury Department’s press release announcing the Act states that in the department's view the distinctions are "no longer meaningful," that investors rely upon recommendations from BDs in the same way that they rely upon recommendations from IAs. The Act would authorize the SEC to create a unified set of standards. In the words of a "client newsflash" posted on the webpage of the Davis Polk law firm, "The inclusion of these provisions in the Act may presage greater involvement by the SEC, in addition to FINRA, in directly regulating sales practices of broker-dealers."

By the way (have I mentioned this lately?) nothing you have read or are ever going to read in this blog is to be taken by any rational or even vaguely conscious being as a piece of investment advice to any degree whatsoever.

I'm so glad we've cleared that up.