By Kristen McNamara
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)–A draft financial-service reform proposal unveiled Tuesday by Sen. Christopher Dodd (D., Conn.) won applause from financial advisers and state regulators.
“The draft legislation’s treatment of issues that would directly affect investment advisers represents a very thoughtful and knowledgeable approach,” the Investment Adviser Association said in a statement.
The 1,100-plus page document circulated by Dodd, chairman of the Senate Banking Committee, calls for brokers who act as investment advisers–meaning those who provide ongoing investment advice–to register as investment advisers and be subject to the Investment Advisers Act of 1940. This would include a fiduciary duty to act in their clients’ best interest.
These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:
As you read in Wednesday morning’s Wall Street Journal, Sen. Christopher Dodd (D., Conn.) has offered a sweeping bank regulatory reform bill.
The bills introduced in the House and Senate (Dodd) focus too much on who does what–reorganizing who regulates what banks and which activities. Those would regulate banks in a badly and too costly way by imposing too many costly requirements instead of improving the principles of good banking practice and risk management.
For example, imposing a consul of regulators on systemic risk and oversight is a terrible mistake–either it will be management by committee (an interagency group that reaches consensus slowly and badly in crises) or it will be dominated by its chair who will be engaged in tugs of war with the Federal Reserve chairman at times when decisive, surgical and dramatic action is required.