Investment Regulation Can be a Negative for Investors

In our modern-day world regulation and compliance issues seem to be everywhere. My observation of regulation is it continues to get more complex and more time-consuming.

That is certainly true in the investment business.

On a positive note, I agree there should be a high standard of conduct for people providing financial planning and investment advice to clients. Your money is critical to your well-being.

The business model for receiving financial advice is fairly simple. You, the client, have specific financial planning and investment needs. In order to provide excellent service your advisor needs ample time to prepare for and conduct meetings with you.

The problem is time. McKinsey & Company estimates advisors spends “60-70 percent of their time on non-revenue-generating activities, amid rising regulatory and compliance obligations.”

The challenge for the financial service industry and for its regulators is to continue having strong regulation but to do so in a manner that does not cannibalize the time of those providing financial advice.

Clients are best served if their advisor can spend the majority of their time and effort on working with their clients and assisting them in achieving their financial objectives.

One regulatory option would be to elevate the standard of care to that of a fiduciary where the simple rule is to act in the best interest of your client.

This would be a higher standard of care than currently exists for most people in the investment business. Fiduciary care is the relationship you have with your lawyer.

That would be a win-win. Less time-consuming regulation for the advisor leaving more time an advisor can spend serving their clients.

Peter Watson, of Watson Investments MBA, CFP®, R.F.P., CIM®, FCSI offers a weekly financial planning column, Dollars & Sense. He can be contacted through www.watsoninvestments.com