o Act will help investors understand what kind of advicebroker-dealers and investments advisers can give.

o Hedge funds will be required to report to the SEC to monitorand prevent systemic risk.

o Market upheaval and new reforms may steer even more jadedinvestors to credit unions.

Joe and Jane Consumer may be overwhelmed with what the recentlyenacted legislation aimed at overhauling financial services meansin their day-to-day lives. But advocates say the changes are reallyin their best interest.

“The size of the [bill] is more than 20,000 pages,” said JimMetz, senior vice president of asset management at CUNA MutualGroup. “Frankly, it's going to take months or years before we knowthe full impact.”

Weeding through the landmark Dodd-Frank Wall Street Reform andConsumer Protection Act of 2010, there are several areas ofscrutiny that deal with investor protection reform, ranging frommore licensing requirements to conflicts of interests with creditrating firms. Still, the SEC said the new law “creates a new, moreeffective regulatory structure, fills a host of regulatory gaps,and brings greater public transparency and market accountability tothe financial system.”

As required by the act, the SEC is seeking feedback fromconsumers as it puts together a study that will determine if retailinvestors actually understand that there are different standards ofcare applicable to brokers, dealers and investment advisers when itcomes to giving out investment advice. A credit union member mayturn to a financial professional not realizing that there is adifference between a broker and an adviser and that he or she canbe treated differently based on who they're getting theirinvestment advice from.

For one, the SEC will essentially hold broker-dealers to afiduciary standard similar to that of investment advisers. Metzsaid the standard currently applied to advisers is suitability,which means each time an investor makes an investment, the standardof care provided is appropriate for that client's needs and his orher timeline. Applying a fiduciary standard requires an adviser tothink more broadly and look at the best interests of the investorover a longer period of time.

“From the consumer's perspective, it's a good change,” Metzsaid. “Advisers have to look at the deeper relationship. They'rechanging from a transaction focus to one that is more relationshipdriven.”

Investment advisers must have certain licenses, but with thefiduciary standard, a new series will be required, Metz explained.CUNA Brokerage Services' advisers currently have the requiredlicenses, he pointed out. Advisers at the firm earned theadditional registrations as turmoil in the market heated up. Forthousands of others, however, having the fiduciary standard will bea new requirement.

Another area set for transformation under the new act is thathedge funds and private equity funds that have $150 million inassets under management will be required to register with the SECas investment advisers. Regulators will then be in a betterposition to monitor risk. Metz said for consumers, it strengthenscontrols, and this new oversight will affect a significant numberof funds.

“The government said to not look at hedge funds would have beenan oversight. Much of the goal is transparency,” Metz said.

SEC Chairman Mary Schapiro said regulation of private funds islong overdue.

“These funds have flown under the regulatory radar for far toolong. The lack of a comprehensive database for private funds hasmade it virtually impossible to monitor them for systemic risk andinvestor protection concerns,” she said.

The act also eliminates the so-called 15 client rule that allowsadvisers to avoid registration while managing substantial amountsof assets on behalf of a large number of investors. It alsoauthorizes the SEC to require registered advisers to maintainrecords and file reports regarding the private funds theyadvise.

Credit rating agencies will be monitored differently under thenew legislation. The SEC said the procedures and methodologies usedwill be included with ratings and that each rating will beaccompanied by a form disclosing a full range of qualitative andquantitative information. The disclosure is needed because,Schapiro said, “It was an over-reliance on credit rating agenciesthat contributed to significantly to the explosive growth and thenviolent contraction of the securitization market.” She cited agovernment report that indicated 93% of the AAA-rated subprimemortgage-backed securities issued in 2006 are now rated atjunk-bond level or are in default.

There are a number of other areas set for transformation,including corporate disclosure requirements involving compensationand the over-the-counter derivatives market. The SEC said it willpeel back each area under its regulatory scope over the next 18months. The commission will be putting together dozens of studiesand asking for consumer feedback as it moves forward withimplementation.

“I believe the act, especially when fully implemented, willbring us closer to a goal we all share: namely, more stablefinancial markets that better protect investors and facilitate thecapital formation on which our workers, investors, companies andeconomic growth rely,” Schapiro said.

Meanwhile, Metz said many of the reforms will be felt more sooutside of the credit union industry.

“When you look at this [act], it's very much targeted at banks.The thing about credit unions is they've always operated with thebest interests of members in mind. There will be certainly be someimpact, some good and bad,” Metz said. “Over the last two years,opportunities for credit unions have increased because of the trustand partnership with members. We've seen an increase in investorslooking for a trusted adviser.”

–[email protected]