Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, April 15, 1990 TAG: 9004110542
SECTION: BUSINESS PAGE: A12 EDITION: METRO
SOURCE: Albert B. CRENSHAW THE WASHINGTON POST
DATELINE: WASHINGTON LENGTH: Long
Rep. Rick Boucher, D-Abingdon, backed by a coalition of financial-planning and consumer groups, has introduced a bill that would require all planners to register with the Securities and Exchange Commission and to disclose accurately to their clients their credentials and sources of payment for their services. It would also give the SEC more authority to impose penalties without having to go to court.
In today's patchwork regulatory environment, "the problems truly are extensive," Boucher said. In addition to press reports of fraud and abuse across the country, Boucher said, he has received complaints from constituents in his own Southwest Virginia district.
While he said these have been "isolated" and have not involved outright theft, Boucher said they indicate that some planners are not telling clients about fee or commission arrangements. That suggests their "advice is biased, that the planner is more a salesman for a product and not an unbiased offerer of advice" in some cases, he said.
The Consumer Federation of America estimates that "consumers lose or misinvest at least $1 billion a year at the hands of unscrupulous and incompetent planners," according to the CFA's Barbara Roper.
The major industry groups have lined up behind the bill, Boucher said, because by passing it "we enhance the reputation of the good financial planners, the ones who are serving their client's interests, and we weed out the bad ones."
The measure comes at a time when the industry has been going through a shakeout brought on by both the 1986 Tax Reform Act and the 1987 stock-market crash. The former largely eliminated the tax shelters that many planners had found profitable to sell, and the latter frightened many small investors into extremely conservative strategies - like leaving their money in the bank.
Thus, many financial planners believe that if their profession is to survive and prosper, it must convince potential clients that it will serve their interests well, an image they believe strong regulation will foster.
While Boucher's bill is endorsed not only by the industry but by six other members of the House Energy and Commerce Committee - including Chairman John D. Dingell, D-Mich. - it appears headed for the same kind of squabble that surrounded enactment of a Maryland planner-regulation law last year.
While there is little doubt that planners need, and most want, regulation, the question is whether accountants, lawyers and other professionals whose work could sometimes be construed as planning should be included.
When the Maryland measure was making its way through the legislature last spring, a House committee wrote into it a broad exemption for accountants and others. With that provision in it, the bill's original allies turned against it and sought unsuccessfully to persuade Gov. William Donald Schaefer to veto it.
Officials of the International Association for Financial Planning expressed similar sentiments about Boucher's bill. IAFP President Charles M. Finn said that as written the bill provides "a level playing field" by encompassing "anyone who calls themselves a financial planner."
Any exemption would be problematic, he said. "We would have to see the actual specifics" of any change in the bill, he said, but any escape hatch for competitors would be unacceptable.
Currently, accountants, lawyers and others are exempt from registration under the Investment Company Act of 1940, which Boucher's bill would amend, if their investment advice is "incidental" to their other professional activities.
Accountants, meanwhile, are unhappy with the bill because of a provision that would allow customers to sue if they suffered losses as a result of legal violations by their planner.
"Accountants are increasingly becoming the target of litigation, and we have great difficulty in supporting legislation which increases our exposure," the American Institute of Certified Public Accountants said in a statement.
All sides say they are willing to try to work something out. Boucher said his bill does no more in the way of registration requirements than codify what is now the SEC staff's interpretation of present law. But he added that he understands the various professions' objections and will be discussing the issues with them in hopes of reaching agreement by this summer.
The congressman said he hopes the bill can be enacted in this session of Congress.
Unless and until that happens, though, consumers will have to look out for themselves. They can do this by asking their planner or prospective planner for the information that the proposed law would require the planner to disclose. This is already required in some states, such as Maryland, but not in most others.
Consumer advocates as well as many planners themselves urge consumers to find out all they can before agreeing to do business with a financial planner.
They should know if the planner sells products and gets fees or commissions on such sales. These are not necessarily a bad thing, but they should be disclosed.
Consumers should also know how much education and experience a planner has, and exactly what services will be provided for what fee. Most planners will be happy to supply this data and do it in writing. If you find one who resists, you probably want to take your business elsewhere.
Financial planners can provide useful guidance in today's ever-more-complicated economy. But remember that you've worked hard for your money and it's worth checking carefully before trusting someone else's advice about it.
by CNB