It’s hug your regulator day!
When I first started my business in 1993, I filled out the paperwork to become a registered investment advisor in the State of Mississippi. As a small start-up, I was put under the watchful eye of the Secretary of State’s Office.
On three occasions, auditors showed up at my door, making sure I adhered to the rules and making sure there was no possible financial scandal brewing in my little office. The experience was a little nerve wracking but never burdensome. I was glad to show that I was behaving, and I was grateful for guidance on any sins of omission or commission.
About 10 years ago, my little firm got big enough to be moved to the Securities and Exchange Commission. Now it was their job to check me out and give investors assurance I was law abiding. The only problem is that they never showed up. While I was big enough to be regulated by the SEC, I was not big enough for them to notice me. Lucky me? Lucky for my clients that I continued to behave.
The Dodd Frank Financial Reform Bill sought to address many of the sins of the Financial Crisis of 2008. As with any regulation, it tends to be based on hindsight. We always seem to be regulating for what happened yesterday, so that we forget to watch out for the next crisis. In addition, there is a tendency to overcorrect when we experience a big event.
When it comes to well-functioning financial markets, regulations are a must. Investors who are confident of transparent and fair markets are willing to plunk their money down. And it is that willingness that leads to money getting into the hands of businesses with ideas which will grow the economy. Of course, they should be reasonable regulations. It’s always a delicate balance, and it’s always a trick to keep up with those looking for holes in the laws.
One provision of the new bill pushes my firm back under the state. Even here in Mississippi, financial scandals erupted. People went to jail. Investors lost money, and lawsuits were filed. So, back to the state I went, and that’s when my phone rang. But I’m not complaining. As long as I’m abiding by the rules, this oversight protects both me and my clients.
I still sweat a little, though.
>> Nancy Lottridge Anderson, Ph.D., CFA, is president of New Perspectives Inc. in Ridgeland — (601) 991-3158. She is also an assistant professor of finance at Mississippi College. Her e-mail address is email@example.com, and her website is www.newper.com.