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Financial services bills on the hill

My family went to Washington for spring break this year; the nation’s capital, not the state. I wanted to show them our government at work and I wanted them to experience the history through our monuments and our museums. It is a trip worth taking, not only for the children but to remind ourselves that what we do in Washington is important. It was the week of the healthcare bill debate in the House of Representatives and there was a lot of commotion on that side of the capital. The line to get in the viewing gallery of the House was extremely long so we decided to see what was going on in the Senate. The Senate wasn’t debating healthcare when we were there. They were debating funding of a project that would affect public schools in the Washington D.C., area. It wasn’t a particularly hot debate. We heard speeches from Sen. Feinstein from California and Sen. Joe Lieberman, two of the stars of the political scene. It would have been even more impressive if anyone else had been in the room. I mean other than the pages, stenographers and other folks required to be there, the room was empty. The Senators were simply giving speeches to be recorded for the record. The oddity of the experience did not escape my daughters, who both wanted to know where everyone was hiding. It was a good question.

While we were there, I thought it would be a good opportunity to show my daughters how the average citizen gets their voice heard in Washington.  I arranged to meet with both of our senators, Thad Cochran and Roger Wicker, and our First Congressional District Rep. Travis Childers.  I also asked to speak to their congressional aides who handle financial services issues. All three Congressmen were happy to oblige. There are bills being bantered around in both the House and Senate regarding significant changes in my world, and I was interested in how the Mississippi delegation felt about the proposed changes.

The bad news is that none of our delegation seems to have formed an opinion on the parts of the financial services bill that I am most interested in.  The good news is that none of our delegation seems to have formed and opinion on the parts of the financial services bill that I am most interested in.  They are all very aware of the marquee issues such as “Too Big to Fail.”  “Too Big to Fail” is the notion that government needs to intercede when a company gets to a size and influence that would make their existence an imperative for economic stability, such as was the debate over Lehman Brothers, Bear Stearns, AIG, etc. etc. etc.

However, I am most interested in two pieces of the proposed legislation that I believe you should be interested in as well.  I am interested in “fee transparency” and a “uniform fiduciary standard of care.”  Both issues are pretty straight forward and easy to understand.  Fee transparency, in layman’s terms, simply means that investors should be able to distinguish how much it costs them to invest in something or with somebody. It seems easy enough, but the financial services industry has been phenomenally successful in masking fees inside of their investment vehicles.  Just last week, I had a client who told me that someone made a pitch to take my place as the advisor to his retirement plan.  His pitch was, “Why would you use them when we would do the work for free?”  It is amazing that someone would actually make that pitch, but it is more amazing that many people actually believe it is true.  I think that it is time for the financial services industry to come clean about how much it cost to do business.  Once investors know what they are truly paying, then they can make an educated judgment as to the worth of the advice.

The second issue is pretty simple, as well.  Most investment professionals in our country are not required to act in the best interest of their clients.  Let’s be clear on this.  Many investment professionals do act in the best interest of their clients; I said that they weren’t required to act that way.  Many of us would like to make it a legal thing.  I don’t think that investors should have to wonder if we are acting in their best interest.  When I first started in the investment business my business card said “stockbroker,” a term of which I was very proud.  Now my card says that I am an “investment consultant,” something I am equally proud of.  However, there is a difference in those two roles.  I no longer trade securities for a commission and it would be wrong to indicate that I do. I gave up my Series 7 license that allows payment of commissions.  I give advice to my clients and, in my case, manage their portfolios at my discretion.  That is why I now have a Series 65 license, am officially a registered investment advisor, which requires me to put my client’s interests above my own. It is called a “fiduciary standard of care.”  The problem today is that a lot of investment professionals want to call themselves an advisor or a consultant, even if they are still trading securities for a commission. That is confusing to clients who, in my experience, are expecting a standard of care that puts their interests first. I want the financial services bill to require a fiduciary standard of care for every investment professional who claims to give advice to their clients.  It’s a simple concept but one that would, I think, significantly change the delivery of investment products to potential investors. I believe this change would be very good for our industry as well as our clients.

We have a chance to help form the opinion of our congressional leaders on these issues. I encourage you to call their offices and let them know how you feel. It’s the way we get things done in this country.


Scott Reed, CIMA, AIFA, is CEO of Hardy Reed Capital Advisors in Tupelo.

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