"Broker-dealers have generally concluded that in arbitration, non-lawyer arbitrators don't apply the fiduciary duty standard for investment advisors and the suitability standard for broker-dealers any differently," he says. "However, if there is no longer mandatory arbitration and cases are decided in courts by judges, the difference between a fiduciary duty standard and a suitability standard is likely to be much more meaningful."

Of course, how this and other proposed measures ultimately play out remains to be seen. But a little Friday morning quarterbacking can help advisors grasp how some of these proposed reforms could affect them.

For example, the TowerGroup expects that greater rules-based reporting requirements could add 10% to 20% more compliance costs to RIA firms. And smaller firms will feel the biggest squeeze. In a report, the consulting firm estimates that RIA firms with less than $100 million in assets under management currently spend between $6,000 to $35,000 annually on compliance costs. And that doesn't include labor or opportunity costs when advisors do their own compliance work.

The TowerGroup believes broker-dealers can better handle regulatory changes because they already employ "relatively robust" rules-based programs. But if brokers are required to adopt a fiduciary standard they will have to either build technology for fiduciary oversight and transparency, or have vendors do it for them.

"The fiduciary standard is very open-ended," says Bienfang, the TowerGroup research director. "There's a lot of judgment within that standard of what's in the best interest of the client. I don't know how you can map that out with programming language."

Similarly, RIAs will have to rely on more extensive compliance reporting tools to meet the expected regulatory changes. According to Bienfang, some platform providers don't currently provide RIAs with enough tools to meet tougher reporting requirements. But that could easily be rectified.

Handicapping The Outcome
Financial services reform is complicated, and it usually takes a long time to get through Congress. The Gramm-Leach-Bliley Act, otherwise known as the Financial Services Modernization Act of 1999, was actively considered by Congress for six years before it was passed. Among other things, the act eliminated the separation of investment banking and commercial banking mandated by the Glass-Steagall Act of 1933. This subsequently set off a wave of mergermania in the financial services industry that created the likes of megafirms such as Citigroup.

The Gramm act also exempted security-based swap agreements from SEC regulation. Critics of the act claim these two provisions led to financial excesses that paved the way for the Great Recession.

"Some of these big bills are so complex that they end up with compromises," Callcott says. "Some parts work better than others."

Callcott questions whether Congress will be able to get a comprehensive financial services reform package done before the 2010 election because the issues are so complex and Congress has so many other items on its plate.

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