Regulation is an interesting concept. Presumably regulation protects people who have the inability to protect themselves. Not such a crazy idea. There are many situations and products that I would like to trust that the people who provide them cared enough to do their best. Prescription drugs, cars safety, fireproof materials and so on, seem okay with me. I am not as convinced about the financial regulations though.
There is a problem with regulation.
No one knows where the dividing line lies between “cannot protect themselves” and “can protect themselves.” The can protect really means that they can choose the proper adviser. No one knows where it should lie. If you protect too much, people get lazy and then surprised. If too little, then more people are harmed than should be. The consensus position then becomes let’s protect everyone completely. Sadly, a failing proposition.
I don’t envy those who are trying to create a workable set of rules.
From the provider’s side, financial regulation is mostly unneeded. I have several thoughts in this regard and not everyone, acting in good faith, will necessarily agree with me.
Who will win in all this?
Regulators look like winners. Decent jobs and no blow back to them.
Advisers, not so much. They will be in the middle of opinion based outcomes. There will be few facts.
Some potential clients will be the big losers. Advisers who are capable enough to be useful today, will refuse to deal with people who are relying on regulations to keep them safe and/or, are not sophisticated enough to understand the plan, its risks and its possible range of outcomes. More important still, advisers will not deal with small accounts, because they cannot afford to do so given the cost of compliance.
If regulators wanted to deprive young people, and people with less than about $400,000 to invest, of the ability to access skilled advisers, they could have hardly improved on the current methods.
Regulations need to be principal based and have fewer rules to be compliant. Let the clients and the advisers reach agreement on the level of complication that works for them. It is not enough for there to be a competent adviser; there must be a competent client too. Just like the idea that clients should not deal with incompetent advisers, advisers should not deal with incompetent clients. They are trouble.
The only advantage I can see to many rules is that it makes it easier for the regulators to make their case. Not much of an advantage to society in my view. It is like the idea that the real reason for life preservers on the Great Lakes is to allow the coast guard to find the bodies easier.
Today is a cynical day, sorry.
Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.
email@example.com | Twitter @DonShaughnessy | Follow by email at moneyFYI
Regulation without enforcement is dead.