No time for regulation as usual
Despite the rebounding stock market, many Main Street investors remain outraged as they continue to suffer the consequences of the unbridled risk-taking and large-scale financial fraud that battered financial markets last year.Against this backdrop, Congress is considering sweeping legislative changes that affect investors throughout the nation – including New Hampshire – who are trying to rebuild and safeguard their financial security. As New Hampshire’s securities regulator, I urge investors to get involved and let Congress know that we need real financial reform.For example, consider how you will be treated by your stockbroker when he or she gives you investment advice. Currently, customers of stockbrokers and investment advisers are treated differently. Investment advisers are required by law to act as “fiduciaries” by recommending investments that are viewed as being best for you, not merely those that are “suitable.” Investment advisers also are required by law to provide up-front disclosures about their qualifications, services they provide, how they are compensated, any possible conflicts of interest, and whether they have a record of disciplinary actions against them.Brokers, on the other hand, are held to a lesser standard of care, one that only calls for them to know your financial situation well enough to recommend investments suitable to your needs. They also are not subject to the same up-front disclosures as investment advisers.Along with my fellow state securities regulators, I believe that true financial services reform demands that all investors be treated with the highest standard of care, no matter who is recommending an investment. I urge Congress to ensure that brokers who offer investment advice to meet the same standards as other investment advisers: a fiduciary duty standard. Congress must resist industry attempts to water down this strong standard under the guise of developing a new federal fiduciary standard for both broker-dealers and investment advisers.The law all investors need is already on the books. It just needs to be applied to brokers who provide investment advice.As the debate over regulatory reform heats up in Congress, so too have efforts by powerful interests in the financial services industry to delay, derail and distort necessary regulatory changes to strengthen investor protection. But business as usual doesn’t work anymore.Years of deregulation at the federal level have left a legacy of failure to properly scrutinize the financial industry.While the recent financial crisis was the result of many industry and regulatory failures, I want New Hampshire investors to know that a failure of state securities regulation was not one of them. Congress has recognized the capabilities of state securities regulators and is considering increasing state oversight of a greater number of investment advisory firms. States have an efficient and effective system in place for the regulation for investment advisers, and we are developing systems to better deploy our resources should we take on greater regulatory responsibilities.Meaningful investor protection is not just about the resources a regulator throws at a problem, but also the willingness of a regulator to make tough decisions to ensure that investors are protected. The record of state securities regulators demonstrates clearly that we have both the will and the ability to regulate.
Mark Connolly is director the New Hampshire Bureau of Securities Regulation.