Financial Services Overhaul Getting Closer
December should be a busy month for those involved with overhauling the U.S. financial services industry. In November, committees in the U.S. House of Representatives and the Senate passed separate reform bills with far-reaching implications that run the gamut from the role of the Federal Reserve to the application of the fiduciary standard among financial advisors. The bills will be debated in both chambers this month, and there are hopes of getting a compromise bill to President Obama sometime soon.

The House Financial Services Committee passed a bill proposing to strengthen the Securities and Exchange Commission by doubling its authorized funding over five years and providing new enforcement powers. The bill would authorize the SEC to collect user fees on all SEC-registered investment advisors to pay for the entire cost of its inspection program, and would enable the SEC to ban mandatory arbitration clauses in customer contracts. It would also raise the threshold that separates SEC- and state-registered investment advisory firms from $25 million in assets to $100 million.

In addition, the bill calls for establishing a harmonized fiduciary duty standard of care for both investment advisors and broker-dealers who provide investment advice, a standard that would put clients' interests first. But various trade groups representing investment advisors, who are governed by the fiduciary standard that's embedded in the Investment Adviser Act of 1940, are concerned that wording in the legislation could enable brokers who sell only proprietary products or a limited range of products to meet their fiduciary obligations by getting "consent or acknowledgement" from the customer. Although the fiduciary standard allows for the sale of such products, these groups fear that in some cases they could be sold under the fiduciary banner even if they aren't in the client's best interest.

"This could lead to a weakening of the fiduciary standard," says Dan Barry, director of government relations at the Financial Planning Association.

The House bill also contains an amendment that could give the Financial Industry Regulatory Authority (FINRA) authority to regulate the RIA businesses of dually registered advisory firms and advisors or firms associated with brokerages. But a spokesman for the House Financial Services Committee says that Chairman Barney Frank (D-Mass.) will offer an amendment to strike the FINRA-related amendment when the bill goes to a full House vote in early December.

Not everyone favors that. "I'm in the camp that believes that FINRA is probably the one organization that can oversee all of this activity if given the budget to beef up its number of examiners," says Russ Diachok, president and chief executive of Geneos Wealth Management, a broker-dealer in Centennial, Colo. "I'm aware that's not a popular opinion."

The Senate Banking Committee's far-reaching reform package would also boost the SEC's authority and resources, while streamlining its oversight responsibility to make it more efficient. Specifically, it would make the SEC self-funded through fees it already collects via securities transactions. It also raises the dividing line between SEC- and state-registered investment advisory firms to $100 million.

The Senate bill would also excise the broker-dealer exclusion to the Investment Advisor Act that exempts brokers from registering as advisors so long as the advice they give clients is incidental to selling products. "What that means is if a broker meets all of the test of an advisor--i.e., compensated for rendering advice regarding securities--they'd be subject to all of the regulatory standards as investment advisors and would be governed by an overarching fiduciary duty," says David Tittsworth, executive director of the Investment Adviser Association.

McCann Making Mark At UBS
(Dow Jones) UBS is beginning to untangle a strategic direction for its U.S. wealth management unit, now that a new leader is in place. Appointed in October, former Merrill Lynch brokerage head Robert McCann has shown a threefold strategy: stop throwing buckets of money at new recruits; focus on retention; and stake a claim somewhere between mid-size firms and the biggest wirehouses. His challenges are to quickly stanch client-money outflows and put a shine back on UBS reputation for financial advice, tarnished by the Swiss banking scandal. He also must combat persistent rumors--ones that he and other executives deny--that the parent company may sell or spin off the U.S. wealth management unit. Over the past year, the other major brokerages in the U.S. merged with big banks or each other in a hurried effort to regain stability. UBS has been relatively idle, leaving many industry analysts wondering what direction UBS Wealth Management U.S. will take. "We all know [McCann] has to have a plan or he wouldn't have taken the job," says Alois Pirker, wealth management research director at Aite Group. "It's just a matter of how that plan unfolds and whether it is successful."

McCann's new management team includes six current members of the executive committee and four new hires, all colleagues of McCann's at Merrill Lynch: Bob Mulholland, Brian Hull, John Brown and Paula Polito.

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