Securities Regulation and Litigation Lawyer & Attorney : OverRegd Blog : Lindquist & Vennum Law Firm, Minneapolis and Denver

This March, the Treasury Department released its Blueprint for a Modernized Financial Regulatory Structure.  The Blueprint called for a thorough restructuring – and even deeper federalization – of the financial services regulatory system.  The Blueprint called for, among other things: a new federal agency to oversee mortgage origination; optional federal chartering for insurance companies; consolidating federal banking oversight with one agency, regardless of whether a bank is federally or state chartered; merging the SEC and the CFTC; and creating a triple-headed scheme of federal regulation, with single agencies having oversight for market stability, “prudential” oversight of government-backed institutions, and business conduct.

At the time the Blueprint was released, the financial services and securities industry was headed for rough water:  the auction-rate securities market had cratered; subprime mortgage portfolios and mortgage backed securities were clearly in trouble; concerns were bubbling about naked short selling; Bear Stearns collapsed, and was sold.

Those were the days.  Since then, Lehman Brothers imploded.  Merrill Lynch was sold at a firesale.  AIG required emergency resuscitation to survive. Subprime lending and overinvestment (and misvaluation) of subprime-backed securities has proven to be the biggest disaster, and even more damaging, since the junk bond/leveraged buyout mania that fueled and then destroyed Drexel Burnham Lambert in the 1980s.  And Congress is on the verge of passing a staggering bailout package to try to bring some sort of order to the market. 

In this environment, the push for a regulatory overhaul will only be more intense.  With a new administration on the horizon, the demand for substantial increases in the scope of federal regulation will make change inevitable, regardless of whether it is an Obama or McCain administration.  The Treasury Blueprint  will, undoubtedly, not be the exact model for a new regulatory scheme. However, we can be sure that federal oversight will become both broader and deeper.

• Email This
• Print
• Comments
• Trackbacks

Last month, the Certified Financial Planner Board of Standards issued updated Standards of Professional Conduct for CFP-certified financial planners. Those standards take effect on July 1, 2008.

The new CFP Standards highlight the increasing convergence, from a regulatory standpoint, between the once clearly distinct worlds of broker-dealers and investment advisors. Many registered securities representatives, particularly experienced reps, have earned and use the CFP designation in their practice. Many of those same CFP-certified reps also have their own Registered Investment Advisor firm, or are investment advisor representatives of a RIA or a dually-registered securities firm. As the CFP itself states, the new Standards apply to every CFP-certified financial professional, regardless of that professional’s licensure under the B-D or IA schemes, or both.

So what do the updated standards do? Although the CFP strengthened a number of its standards related to data gathering, disclosure, analysis, and monitoring, the bottom line is that the standard of care has been significantly ratcheted up: whereas the CFP required before, at minimum, a standard of “reasonable and prudent professional judgment” it now states that a CFP certificant “shall at all times place the interest of the client ahead of his or her own.” In other words, a fiduciary obligation.

Not surprisingly, advocates from the B-D world see this as a further erosion of the distinction between the obligations and business models of broker-dealers and investment advisors; the Financial Services Institute, for example, has urged its independent broker dealer members to raise concerns with the CFP Board regarding the standards.

Groups like the FSI will and should fight hard to insure that standards and legal requirements make sense for firms, representatives, and clients. However, the trend is clear. State securities regulators will continue to press for a fiduciary obligation for B-D firms and representatives. There is movement at the federal level for significant change in the financial services regulatory scheme, with the Treasury Department’s recent “Blueprint for a Modernized Financial Regulatory Structure" the clearest example. Dual-registration will increase, and traditional broker-dealers will continue to expand “hybrid” platforms to serve both B-D and IA models. Nobody can say for sure where this is going, but it is clear that the next few years will see substantial changes in the way securities firms are regulated.

• Email This
• Print
• Comments
• Trackbacks

Due to historically low interest rates and escalating home prices, an increasing trend shows that investors are taking out new mortgages, refinancing, or obtaining line-of-credits secured by their homes for the specific purpose of investing in the market. "Betting the home" in order to invest creates unique suitability considerations. Examine the following scenario:

• Email This
• Print
• Comments (1)