The Financial Reform Law - What Does it Mean for You?

President Obama signed Financial Reform into law on July 21, 2010 saying it, "provides the strongest consumer financial protection in history," and he told the American people "No more tax-funded bailouts, period!" Is this law the answer to all the nation's financial problems? No! Does it help? Somewhat! How would I describe the process behind the writing of this law? Horrendous, a national embarrassment! Deeply involved are the lobbyists (I call them the bribers) and our legislators (the bribe takers). Many of the components of this law are watered down, and implementation of key elements are deferred and placed in the hands of regulators (which will cause the bribers to shift their focus to the regulators.)

The Consumer Financial Protection Bureau will help consumers in financial services, mortgages, and short-term loans. But the regulations won't cover auto dealers, pawn brokers and "others" - who apparently hired more effective bribers. Hidden fees will become up-front fees; financial institutions will come up with new fees to replace lost revenue. Overall this Bureau should make conditions better for us, but remember well that we are ultimately responsible for our own finances.

The primary reason for this new law was to fix the financial malfunctions which caused our "worst recession since the Great Depression" (President Obama). Unfortunately, the new law does not do that. Fannie Mae and Freddie Mac, government-owned companies many blame for the housing bubble, are not covered under this law. Restrictions on trading derivatives and the sponsoring of hedge funds and private equity firms by financial institutions (the Volcker rule) has been watered down, but it does look like there might be more transparency in this area. And I sincerely question whether we the taxpayers will not be directly affected by future financial crises.

One area dear to my heart is a proposed regulation that brokers must "act in the best interests of their clients." Who could oppose such a regulation (except the brokers themselves)? I am a registered investment advisor and my fiduciary standard has always been, I "must act in the best interest of my client." Why can't brokers? The law includes language that calls for the Securities and Exchange Commission (SEC) to conduct a six-month study on the issue. Believe me, the broker-funded bribers are already going all out on this one.

Worrisome also is the comment by former SEC chief Harvey Pitt (who gives the legislation an "F" or "I" for incomplete) that the law should be called the "Lawyers' and Consultants' Full Employment Act of 2010."

As a financial advisor my advice for you is prepare for the next financial meltdown by lowering your asset allocation in the equity market and continue to rebalance your remaining equity investments annually.