All of this leads to another watchword for 2009–and 2010: reform. Americans have very major reforms underway in healthcare, financial services and taxes. These are not your everyday reforms, oh no. They are sweeping changes. They are by no means perfect, but a lot of them will be good for Americans, and ultimately companies, and perhaps even taxpayers. Health insurance coverage for more Americans is good–even though 2014 seems too far off.
Enabling regulators to oversee immense risks to the stability of the financial system, and demanding transparency–requirements like having to keep assets and liabilities on the books instead of buried somewhere–are good. It would be great to prevent companies from making leveraged bets against other firms that pay off if the other firm goes under. Legislation and regulation that requires all who provide advice to individual investors to abide by the fiduciary standard–which puts the investor's interests first, and demands prudence, full disclosure of conflicts of interest and resolution of those conflicts in the investor's favor–is very, very good. Because what's good for investors will ultimately be good for financial services. All of this is possible now as we emerge from the rubble. This gives me great hope.
Change is not easy.
What are the things wealth managers' clients may be thinking about as they end 2009 and make their way into the new year? The changes in regulation and law regarding healthcare and financial services will affect wealth managers, their firms and their clients. The financial services reforms will vastly alter the way Wall Street, insurance and banking work. Wealth managers within registered investment advisory firms may not face the kinds of changes broker dealers and investment banks will endure, but the status quo is shattered, and that's not necessarily a bad thing.
Starting with putting client's interests first (as many of you already do), will be a change that will be awesome over the long term even for the firms that will have to make fundamental changes to do this.
One large open item for wealth managers is: if all providers of financial and investment advice to individual investors will must provide their services as fiduciaries, who will oversee the advisory lot? SEC? FINRA? Some other entity? Even though FINRA's bid to oversee the broker/dealer-RIA firms was stripped out of the House version of financial services reform, the Senate version still is in play, and the there will be reconciliation before any of it becomes law, so this is a large uncertainty.
Wealth managers are also left to wonder about the effects of Congress's inability to pass estate and gift tax laws that would address the 2001 Tax Act's (EGTRRA) sunset provision, effectively throwing much tax planning into chaos. See "Lawmakers Unable to Pass Estate Tax Reforms." I'm not picking on Congress-they've been busy–really, really busy.
