The Message: 2010 Financial Reform A Look Behind The Curtain

In the coming weeks expect to see Congress shift their focus to Financial Reform. It is upsetting that this has taken so long to attract focus, but none the less, it is here and will now dominate the news from Capitol Hill. The US Government is resolute and determined to enact some laws to try and insure that the meltdown of 2008 never happens again. While this endeavor will attempt to cover a broad definition of financially related topics, most important will be a hard look at conflicts of interest and compensation reform of advisors and brokers. Let’s take a closer look and see how new laws and regulation can hurt and help us.

If you think about it, all laws and regulations are ultimately enacted to attempt to protect us from ourselves. Emotionally crafted rules are directly the result of the actions of others who have tried to do us wrong. Ponder that for a moment. Why are there motor vehicle laws, IRS regulations, or even corporate laws? If you think about it, even the US Constitution is a set of rules and regulations adopted to protect and govern a new country from the abuses of Britain at the time. Now to come, even more regulation and rules to protect us from abuses in the financial industry.

As it pertains to some facets of the financial world, some of these regulations can be crippling to the economy. As we covered in a previous Cedrus 180, the current financial reserve requirements on our country’s banking system, set in place during a crisis, are unreasonable going forward and solely responsible for our banking systems inability to lend or extend credit. Other regulations, however can often be well crafted and right on target to affect behavior in positive ways to the benefit of us all. One such area being addressed is the fiduciary responsibility of Investment Advisors to their clients in recommending investment products and the money managers. Rather than reading my writing and explanation of this, see below "Conducting Due Diligence of Sub-Advisors" an article that we at Cedrus received from our retained outside SEC Compliance partner NCS.

These regulations are good news for investors. In over two decades on Wall Street I have witnessed firsthand the lack of due diligence that often goes into many broker and advisor's suggestions without proper recourse. Also, the compensation model inherently fosters conflicts of interest. This concern is one of the cornerstones of the founding of Cedrus. You might be surprised to hear that we never accept commissions or compensation from outside or other advisors on behalf of our clients. We would consider that a conflict of interest. The NCS article clearly outlines the very reason Cedrus has SEI oversee all of our client’s assets. In my view, it is physically impossible for a broker or advisor to independently comply with all of these new due diligence regulations. That is why we outsource this important process to SEI. It is amazing to me the prospects or potential clients that I've encountered that choose to do this on their own or rely on a family friend’s advice to cut corners on this critical element in protecting ones wealth.

Through our partnership with SEI, we strive to make sure that all of these regulations are being covered on your behalf. We also accept any new regulations that further the cause of due diligence as we have practiced them from day one and welcome our peers, and thus the consumers, to “join the party”.

In conclusion, sometimes regulation is good. Cedrus welcomes any financial reform that furthers the cause of due diligence to be advanced by advisors, as it is for your protection. This has been a value of ours since inception of the firm. Others will figure this out someday too, albeit too often the hard way.

Thank you for your continued confidence in Cedrus.

John A. Scott
President
Cedrus

Click here to read: SEI Socially Responsible Investing & Active Management

By John Diederich DFA Client Portfolio Manager & Gina a Montana, Senior Investment, Communications Analyst

This article from John Diederich of SEI may be a few years old but is is still applicable to today. Click on the link to read about how socially responsible investing vs. active management can affect a portfolio.

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http://www.cedrusfinancial.com/pdfs/SEISocially ResponsibleManagingtheManagers.pdf

CLICK HERE TO READ: SEI Managing the Managers Article

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http://www.cedrusfinancial.com/pdfs/SEIManagingTheManagers.pdf

All material represents an assessment of the market environment at a specific point in time and in not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice. This information is for education purposes only. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. There are risks involved with investing, including loss of principal.

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