The financial markets returned to their up-trends in the past week even as the U.S. House of Representatives feverishly pulled together a razor thin, five-vote margin of victory to pass a health-care bill earlier this month.
Apparently Mr. Market is discounting the probability that the Senate will pass a similar bill or he figures the health-care companies will still be around and make plenty of profits because he is still buying stocks.
In the meantime, I direct your attention to two other important topics – financial services regulation and individual decision-making about your financial future. Government regulatory thinking for this sector always has used a two-pronged approach. Making sure companies, sales organizations and advisers do not lie, cheat or steal is the primary focus. This is followed closely by making sure these same players disclose enough of the right information to investors for them to make wise decisions.
The Securities and Exchange Commission is the federal watchdog for this process. The SEC is quite unusual because it is the only piece of our federal government that routinely makes a profit for us since it charges fees to the regulated. It relies a great deal upon a self-regulatory organization, the Financial Industry Regulatory Authority, to police the sales branch of the industry. The Registered Investment Advisors managing more than $25 million in assets are under the SEC directly.
In the case of Bernie Madoff, both oversight operations failed. The SEC failed to include in its checklist what must now be Question 1: Do the claimed assets exist and if so, where are they? The National Association of Securities Dealers, Inc. (predecessor of FINRA) failed probably because it never dreamed that one of its member dealers, a really Big Man on Campus, could act so heinously as a thief.
Now that billions have been swindled from the public, the SEC is reportedly quite intense in current audits of dealers and advisors. It’s the same old story: Now they will turn over every rock looking at smaller companies with generally clean noses.
Congress currently proposes to remove smaller investment advisors (those managing more than $25 million but less than $100 million) from SEC oversight and put them back onto each state’s plate for regulation. Since many of us – Stewardship Capital Ltd. falls into that category – are employed by clients in many different states, I don’t think this is their best alternative.
