A financial-services reform bill introduced by Connecticut senator Chris Dodd yesterday could have long-term ramifications for the people who provide you with financial advice as well as the entities who oversee them. One of the keys to the legislation is that it would require stockbrokers who act as investment advisers to register as investment advisers and act as fiduciaries - which simply means they must always put the interest of their clients ahead of their own. That is simply good sense, and should be applied to everyone who provides financial advice.
The bill also puts advisers with more than $100 million in assets under the purview of the SEC, as opposed to the current limit of $25 million. Those in the $25 million - $100 million range would fall under the regulatory mechanisms of the individual states, which should help make it easier to find and weed out the bad apples.
And there are steps in there to help prevent another Madoff situation. It would call for investment advisers to use independent custodians - the people actually executing the buying and selling of securities. Bernie Madoff served as his own custodian, which is one reason he was able to hide his nonexistent trades. Investors would also be allowed to sue people who help commit securities fraud.
Some form of the bill is expected to pass in early December. We'll keep you posted.
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