Kohl's oversight proposal is panned

The Financial Planning Coalition has found a last-minute angel in Sen. Herbert Kohl, who is proposing language in the Senate's financial-reform bill that would require anyone professing to be a planner to have to register with an SEC-approved oversight board. Advocates are skeptical, however, that the Wisconsin Democrat's Financial Planners Act of 2010 will see the light of day. “The Kohl proposal is not going anywhere,” said Mercer Bullard, president and founder of Fund Democracy Inc., a consumer group that has been battling to no avail to make a fiduciary standard of care mandatory for anyone who offers financial advice. Insurance agents in particular, he said, carry great weight in every congressional district and are lobbying against the proposal that Mr. Kohl is trying to get inserted into the Senate Banking Committee's draft of financial-reform legislation. Under the proposal, anyone affiliated with an investment adviser who advertised himself or herself as a financial planner and offered at least two planning services would have to become a registered financial planner. Those not designating themselves as planners wouldn't be in the clear, because the draft also says that registration would be required for planners who claimed exclusions because they advertised professional or educational attainments, an allusion widely believed to apply to insurance agents who identify themselves as chartered life underwriters and list other credentials after their names. Finally, the proposal would give the Securities and Exchange Commission carte blanche to apply the registration requirement to anyone for whom “such an identification is necessary and appropriate in the public interest and for the protection of investors or other consumers of financial planning services.” The oversight board, whose members couldn't be financial planners or be affiliated with investment advisers, broker-dealers, banks, insurers or futures commission merchants, would establish ethical standards that would “require each registered financial planner to adhere to a fiduciary standard” as interpreted through the Investment Advisers Act of 1940, according to an executive summary of Mr. Kohl's proposal.

POWER TO IMPOSE FINES

The board also would be able to impose enforcement sanctions that could range from censure and penalties of up to $100,000 per violation of its rules to permanent revocation of registration, and fines of up to $750,000 per violation for “intentional, knowing or reckless conduct,” or “repeated instances of negligent conduct.” “Financial planners provide advice on a wide range of issues, including homeownership, saving for college and selecting appropriate investment products,” Mr. Kohl wrote in a Feb. 22 letter to Senate Banking Committee Chairman Christopher Dodd (D-Conn.) that urged him to include registration and licensing requirements in a broader financial-reform bill. “Because this advice will have a lasting impact on the financial health of a consumer, it is important the service provider meets certain standards.” Mr. Dodd — who says he has been focusing on large issues such as ending the too-big-to-fail problem, providing transparency for derivatives and creating a consumer financial protection agency — last week said that he has given up on efforts to create bipartisan legislation and will present his bill this week. Analysts said that he continues to seek compromises on core issues to win support from at least one Republican on the committee, which will help him shepherd a filibuster-proof bill through the full Senate. The Kohl proposal, according to many observers, is unlikely to be a linchpin issue for the pressed leader to focus on. “We are dealing with a lot of members who have a lot of ideas,” Mr. Dodd said at a press conference last Thursday. “We're not going to deal with every issue in the financial services sector.” Although coalition members — the Certified Financial Planner Board of Standards Inc., the Financial Planning Association and the National Association of Personal Financial Advisors — back the Kohl proposal, its sweeping definition of financial planning is being opposed not only by insurance agents who sell variable annuities and other products but by state regulators and other financial advisory groups. The American Council of Life Insurers “is very concerned about Sen. Kohl's new draft regarding financial planners,” Jack Dolan, a spokesman for the trade group, wrote in an e-mail. “It would create more confusion about the delivery of financial advice and products without providing consumers any new benefit ... It creates another financial planner classification to coexist with federal and state regulatory structures.” The proposal is “harmful and unnecessary,” according to Tom Currey, president of the National Association of Insurance and Financial Advisors. “We oppose the Kohl amendment because it does not just seek to simply regulate currently unregulated individuals who call themselves financial planners,” he said. “Rather, it would establish a new [self-regulatory organization] for financial planners and effectively impose another layer of regulation on many NAIFA members who are already regulated at multiple levels.” State regulators object because they would lose their power to license, register, qualify or regulate the conduct of financial planners under the Kohl proposal. (States would retain jurisdiction over some investment advisers and have the ability to investigate and bring enforcement actions involving fraud or deceit.) Investment advisers who primarily manage money but also may offer tax or other planning services said that they are already adequately regulated by the SEC or the states. “We are concerned that individuals who are investment advisers could be pulled into an additional regulatory scheme,” said David Tittsworth, executive director of the Investment Advisor Association. “Also, we oppose the establishment of a self-regulatory organization or other private organization to enforce regulations that should be enforced by a government entity.” The Kohl proposal says that the SEC would seek to reduce registration redundancy between itself and the proposed financial planner oversight board. Discussions about the proposal, which could be submitted as an amendment to the final committee bill, are “ongoing,” but nothing final has been submitted, Dawn Schueller, an aide to Mr. Kohl, wrote in an e-mail. The coalition is still pressing for the Kohl language to be included in Mr. Dodd's proposal, Marilyn Mohrman-Gillis, the CFP Board's managing director of public policy, said last Thursday. “We're hopeful that it will be in the base bill, and we're doing everything we can to move it in that direction,” she said. Some critics within the financial advisory world said that the language in the Kohl proposal is carefully crafted to ensure an oversight role for the CFP Board by narrowly defining a “financial planner oversight board” to exclude associations of broker-dealers such as the Financial Industry Regulatory Authority Inc. and groups that are registered as lobbyists under the tax code, such as the FPA and the IAA. E-mail Jed Horowitz at jhorowitz@investmentnews.com and Hilary Johnson at hjohnson@investmentnews.com.