Subscribe to this BlogWhat Obama's reforms might mean for investors
Even as President Barack Obama unveils his financial regulatory reform proposals, critics are hammering the weaknesses in his plan—everything from continued reliance on ineffective federal agencies to setting up a dubious council of regulators to the too-big-to-fail bank problem.
Still, there is some praise for one of Obama's proposed reforms — the creation of a consumer financial product safety commission that would monitor the marketing of mortgages, credit cards and other loan products. The agency would take power away from bank regulators, who have proven to be more focused on keeping banks running than protecting consumers. The notion of a financial product safety commission was first proposed by Elizabeth Warren, a former Harvard law professor and now chair of the TARP Congressional Oversight Panel.
Sounds good. But there's a crucial element missing:Â some form of protection for small investors, not just borrowers. After all, the victims of the financial meltdown included millions of middle-class Americans who were trying to save for retirement and the children's college educations. Many were poorly informed about the risks in their investments by their brokers, insurance agents and fund companies.
As first conceived, the financial products safety commission would have played an investor protection role by regulating a wide range of financial products, including mutual funds and possibly annuities. Along the way, however, the idea of giving the new agency authority over investments was scrapped. Pressure from financial services lobbyists was clearly one reason. But mostly, the Obama administration has kept its focus on the causes of the market meltdown, which include too much consumer borrowing.
That leaves the chief responsibility for investor protection with the Securities and Exchange Commission, which has famously been asleep at the switch. Just ask anyone who invested with Bernie Madoff.
Still, buried deep in the 89-page White House proposals are several intriguing investor protection reforms. The most important: requiring financial advisers and brokers to follow the same strict "fiduciary" standards.
To understand why this notion is so revolutionary, you have to realize that brokers and financial advisers don't follow the same rules right now. Financial advisers are regulated by the SEC, as well as as the states. And they must meet tough fiduciary standards, which require them to put the client's interest first. Brokers are regulated by FINRA, a self-regulatory agency funded by brokerages, which only requires them to offer products that are "suitable" for the clients, without mentioning conflicts of interest. Most investors don't know the difference.
Question is, will the SEC really follow through on the White House reforms? Since becoming SEC chair earlier this year, Mary Schapiro has promised that the agency will take a more active role in watching out for investors. But the record is mixed. On Thursday June 18, for example, the SEC will hold joint hearings with the Labor Department on problems with target-date retirement funds, many of which shocked investors with their losses in the meltdown. Schapiro has said she favors improved disclosure of target fund risks.
But the SEC shelved reforms of mutual fund 12(b)-1 fees, which were designed to pay for marketing for small funds but have become de facto sales loads. And efforts to ensure brokers and financial advisers follow the same standards have been bogged down for years, with many brokers lobbying to remain under the FINRA.
Still, Barbara Roper, a longtime investor advocate with the Consumer Federation of America, is hopeful. "For decades it's gotten worse and worse for investor protection." she says. "This is the first time I've seen signs that it may move in the other direction."
What do you think Obama should do to help protect investors?
Well AVA looks like you could have used an investment in an English course, but that's another topic.
Also no one requires individuals to invest in their employers retirement plan. It's a good idea, but not required. You're perfectly welcome to save all your money in an IRA at a bank or in taxable savings accounts.
Without risk there is no reward. If you want a guaranteed return percentage, then invest in bonds or CD's.
Much of our current problems lie in credit default swaps (CDS). They are like a cancer or virus in the system and will continue to cause financial tensions as long as they exist. Since CDS's are covering some 60 trillion in debt, it will take time to remove them.
The problem is both financial and philosophical. First financially, there is not enough money in ANY company to sufficiently back the debt, proven by the AIG debacle. Second philosophically, there is no way to eliminate risk in any investment. We do have insurance, but with sufficient reserves to back it. CDS's give a false sense of security and anything false is FALSE. Going after "speculators" who invest in CDS's is useless, they are not the problem but simply a result. The right to invest/speculate is at the core of the capitalistic system.
First of all, people need to be protected and educated to some extent about what brokers & advisors can't really do for you, as we have all just witnessed. Second, I think the only remedy for the evil CEO's and Bernie Madoff's of the world should be handled by the President, in that there is a clawback law. This law would sell every asset that person owns and has transfered to any family members over a 5 year period. Then they should be put in prison on a rotating cell basis, with big hairy men. People should also join together via a class action lawsuit against the likes of these ruthless/greedy CEO's and Bernie Madoff's of the world and sue them for everything they are worth/ with that clawback provision in play.
Obama doesn't care a good apology for investors. He should spread his wealth even though it is invested with Rezko.
I agree there should be investor protection. Auction rate securities and money market mutual funds were sold to investors as products that were as "good as a bank". The federal goverment had to insure money market mutual funds and there are investors that are still trying to get their money back from auction rate securities.
In addition, we have learned about short sales stock brokers were benefiting from while investors were being advised to stay in the market and losing much of their life savings.
How about some cd and or savings protection?? A bank can pay you a half percent on savings and get away with charging 12% on loans. The savings rate paid to savers should be a percentage of their average loan rate. Time to stop rewarding debt and hurting savers. At least make the savings tax free up to a set amount each year, you already paid taxes through the nose for the savings you have and pay taxes on the low rates you get. Time for some protection and breaks for the people that do it right.
Absolutely nothing. Whether you invest in a stock, a bond,a treasury, or real estate, it's an investment. I didn't agree with reinitiating loan terms for investors any more than I'd agree with someone that should bailed out for purchasing FNMA before it tanked. Now we are all paying for it. The democratic mentality of having everyone help everyone needs to stop. Take ownership people of your decisions whether they have good or bad outcomes. We are slipping into the throws of mediocrity as we create this safety net and punish those who actually become successful by heavily taxing them to pay for more bureaucracy and gov't to manage and regulate the stupid people of society.
There are different levels of investor protection. They wouldn't (can't) protect you from real business risks, but they could (and should?) protect investors from deceptive management and board members. ie: board member or high level manager makes a killing liquidating a position while the investors are led to believe everything is `ok' (or rather, the lack of information).
It would also be nice (for SEC?) to require shareholders of public corps to vote on every board and C*O level compensation package. Let the shareholders vote if the CEO should make 200k a year or 200m a year (or whether to give'em options, etc.). It doesn't take -that- long (and it's not complicated) to vote these days.
EMPLOYERS NOW GIVE EMPLOYESS ONLY 2 OPTIONS AT THIS TIME A 401K IN THE MARKET, OR THEIR RETIREMENT FUND. EMPLYEES SHOULD HAVE AN OPTION OF A IRA IN A BANK ALSO RATHER THEN EVERYTING IN THE MARKET AND THAT IS HANDLED BY THEM OR THEIR INVESTMENT FIRM. IF RETIREMENT FUNDS COULD GO INTO A BANK IRA WITH INTREST ADDED TO THE IRA, SO YOU WOULD DRAW INTREST ON INTREST, IF YOU AVERAGE OUT THE LOSSES & THE GAINS BY PUTTING YOUR MONEY IN THE MARKET.(GAMBLING) WITH TWO DOWN TURNS WITH IN A 9YEAR TIME FRAM YOU DONT COME OUT VERY WELL. IF YOU HAD AND IRA THAT WOULD GUARANTEE YOU 5% YOU WOULD BE FARTHER AHEAD. THE AVERAGE CONSUMER DOES NOT UNDERSTAND INVESTING WELL ENOUGH TO MAKE THE CALL ON WHAT TO PUT THE MONEY INTO,THEY RELY STRICKLEY ON WHAT THERE BROKER TELLS THEM. DO AWAY WITH THE STOCK MARKET AND SET UP SOMETHING THAT WILL GUARANTEE THE CONSUMER WILL NOT LOOLSE THER ORIGINGAL INVESTMENT.
Without risk, there is not the potential of higher return. This is a simple concept of finance. If the government takes away all the risk, forget about the potential of meaningful returns and economic growth. I agree to proper regulation where needed. However, instead of adding more regulation and burden onto financial planners trying to educate and assist small investors, let's instead add personal finance education requirements to all our high schools and colleges. Let's try and take preventive measures through education instead of blaming the financial services industry. When as a people will we start taking responsibility for our own actions and rely less on others to babysit us. It's time to grow-up. Also, burdening financial planners further will only reduce the number of planners in business and lessen the availability of advice to Americans willing to seek financial guidance. If all Americans had access to a Certified Financial Planner (CFP), my guess is the housing / mortgage crisis would not have been so devastating – financial planners do not recommend buying houses their clients can't afford.
Investors should have little or no federal protection short of illegal or fraudulent activity by an investment vehicle and even this sort of oversight is questionable. Investing is synonymous with gambling and should be treated as such. As with gambling, investing holds an element of risk including con schemes and charlatans to which a customer may easily become party if they are not educated in their investment.
If a person chooses to put their retirement in the stocks, bonds, or on the roulette table the federal government should have no responsiblity to compensate, investigate, or prosecute any losses in any one of those situations.
If you don't know how to play roulette, don't put your money down. If you don't understand the stock, bond, commodities, real estate (etc.) markets, don't invest your money there.
The SEC is now and forever will be famously under-equipped to handle the tens of thousands of investment vehicles out there. It's a "buyer beware" system which is lucritive if understood and played well, but potentially hazardous if you get in over your head – and it will stay that way.
There is no reason the government should protect those who choose their investments (gambling) poorly any more than it should protect those who purchase video equipment off the back of a truck.
And before you accuse me of being heartless, understand that I am an investor – not professionally – and I take full responsibility for all gains and losses I may incur in my investments and financially protect myself accordingly against potential loss. All investors should undertand and accept the same fate.
More quick and decisive action. What's missing is a czar to oversee our personal day-to-day purchases. Also, a baby boomer anti-selfishness czar. And the ministry of love.
There is a good correlation between market declines and the government "saving the system".
Investing money is a risk people! Everybody jumps up and down when huge returns are coming but cry like tiny babies when the money rolls back. The days of getting rich from investing are over, focus your energies on something more productive and quit whining to Uncle Sam.
For starters, he could understand the meaning of the term "secured creditor" as opposed to passing them over for a big union.
Obama has no experience in the financial sector and I hope to G*d he's not arrogant enough to think he can make any decisions about money when he blew $787Billion on a stimulus that only created & save 150,000 jobs instead of the 3.5 MILLION he claimed his legislation would create.
Why is America okay with blaming the person who created a problem (Bush) but not the person making it worse (Obama).
I don't want anymore mistakes that are going to cost me tax dollars.