The financial market meltdown in 2008 begat big-time regulatory reform in 2010, and Minneapolis financial execs are playing key roles in advocating industry positions in Washington.
John Taft, CEO of Minneapolis-based RBC Wealth Management (U.S.), becomes the area’s second senior financial services exec to take a leadership role representing the industry during the current regulatory reform era.
Taft, as the newly named chairman of the Securities Industry and Financial Markets Association, said he views regulatory reform as a key element in restoring investor trust in the financial markets.
Calling it “the single-largest delegation of rulemaking authority by Congress to regulators in modern history,” Taft laid out the challenge regulators face in implementing the legislation.
Over the next two to five years, the Dodd-Frank act will require “235 rulemakings, 41 reports, 71 studies authored by 11 different federal agencies, bureaus and the Government Accountability Office,” Taft said.
In a recent speech to the association, Taft pledged that the organization would “provide fact-based, content-rich analysis [and] expertise required to create rules that will help the financial services industry do what we do best … help facilitate and foster economic growth … something our country desperately needs right now.”
But as head of the industry group representing brokers and asset managers, he will be pushing for “balance on reform measures that will help ensure the United States avoids future financial crises, while allowing financial institutions to effectively do their part in supporting America’s economic recovery and job creation.”
“Frankly, our biggest fear is that regulators will be overwhelmed by the assignment. Not because there aren’t good, smart people working there, but there simply aren’t enough of them,” he said. “But this phase of reform shouldn’t just be about meeting rulemaking deadlines. It’s about getting it right. We need to get it right.”
Taft elaborated in an interview.
“Regulatory reform had to happen,” he said, pointing out that current rules and laws, “some written at the beginning of the last century,” are not up to the task of regulating complex financial instruments and high-speed, computer-driven trading technologies across global markets.
One aspect of Dodd-Frank that Taft is most familiar with — rewriting the “the fiduciary standard of care” for all investment advisers — is of particular concern. Under Dodd-Frank, the SEC has to write “nothing short of a complete overview of the personal investment advice industry” in five months. Without help from the industry itself, the SEC will not be able to “address all the issues. I don’t care who you are.”
Taft is also concerned about the departure of individual investors from the stock market.
‘In the wake of the financial crisis of 2008-2009, individual investors saw their portfolios decline precipitously in value without regard to investment strategy or asset allocation they were following,” he said. Ensuing “financial market aftershocks,” such as the flash crash last May that saw computer-driven trading whipsaw the market and ongoing debt crises roiling Europe, have increased individual investors’ wariness, he said.
As a result, many “lack confidence if they put money into stocks and bonds, those investments would grow over time.”
“There is no one thing you can do to rebuild investor trust in the financial markets,” Taft said. “In any relationship, when something happens to breach trust, it takes time and numerous actions … to build trust back,” he said.
Taft believes that getting regulatory reform right is a key part of restoring confidence in the market. He is most concerned that regulations are written in a way that “strikes the right balance” on achieving safer markets while avoiding another financial meltdown. “If you don’t have a financial system that promotes economic growth — that grows the pie — then assets will not increase in value,” he said, and investor trust will erode further.
In addition to regulatory reform, Taft said, “the financial markets need to settle down. And that has happened to some extent since the spring of 2009, we’ve had a remarkable recovery with some spurts of volatility.”
The U.S. securities industry employs nearly 800,000 people nationwide, down about 9 percent from its peak in summer 2008. Employment started to grow again, from a low point earlier this year. In Minnesota, a more broadly defined finance and insurance sector has seen employment drop 5.5 percent to about 135,500 from its peak in 2008.