The new “Restoring American Financial Security Act of 2010″ promises new Wall Street regulations. As it stands, only financial advisers have fiduciary requirements, which means that they are entitled to give their clients the best unbiased financial advice based on the clients needs, and not the company’s. Brokers, on the other hand, only have to be faithful to the firm, potentially screwing over their clients without disclosing risky information that could cause the client lots of money. The broker works for the bank, the adviser works for you.

The Fiduciary Requirement for Financial Advisers

So if the broker has the ability to tell you what’s up, then will they? The Gov. wants to get brokers on your side and regulation will put pressure on the sales tactics that Wall Street currently uses to get buyers to buy. According to MONEY magazine, brokers are requires to recommend suitable investments, while advisers have a more stringent “fiduciary duty” to act in your best interest.” That means that an adviser cannot push a fund that won’t suit your needs simply because that funds company pays the adviser to do so. Big no no. Brokers on the other hand, don’t have such a policy.

Disclosing Special Interests by Brokers

What the new policy will do is require a broker to tell the client if they have any special interest vested in the securities that they are about to sell. All information will be laid out on the table before the client hands over any money, so he or she knows. This will help people understand what they are buying and why they are buying it without being pressured by a broker. If the broker does have a special interest in the company, they then have to prove why it is the best option for the client, offering other options in addition.

Will Fiduciary Requirements Hurt Brokers?

It will definitely stir the pot a little and have brokers change the way they do business. However, this can only be a good thing. The more a person trusts their broker, the more they will buy from them. They will recommend the broker to friends and families, and as a result of honesty and a mutual goal of making money, the broker and client can work together instead of the client worrying whether or not they are getting scammed. It has to be a win-win situation.

Future of Financial Regulation

This is a step in the right direction, if not just a glance in the right direction. There is still a bigger issue with insurance agencies that can sell annuities and whole life insurance plans and products that are terrible for clients and investors. If insurance agents were part of the bill, then the circle would be more complete. For now, it falls a bit short. If the bill is accepted into law, it will take affect in 2011.