CHICAGO — Financial advisers and other experts in the investment community reacted warily Friday to news that lawmakers had reached tentative agreement on a wholesale makeover of U.S. financial regulations.
The package is probably in investors' best interest but may have unintended consequences for the firms handling their money, according to numerous financial professionals attending the Morningstar investment conference.
Christine McConnell, manager of the Fidelity Floating Rate High Income Fund, which invests in private bank loans, said the overhaul's passage will lift uncertainties that have left banks reluctant to lend despite recent improvements in credit markets. That reluctance has made it difficult for small businesses to get the financing they need to grow.
“As banks get more information, they will get more comfortable to start lending out money,” McConnell said. “That will help in terms of lending to small business and re-employing the unemployed.”
The reform debate has also left corporations cautious about reinvesting their profits to expand their businesses. That could change as well, McConnell said. “It feels like day by day, step by step, more of these things are becoming resolved.”
Paul Whaley, an investment adviser at Pinnacle Bank in Beatrice, Neb., said the new regulations are little more than window dressing.
He said they fail to get at the root problem, which is separating investment banks from commercial banks.
“When they combined investment banks with commercial banks they said it will work with regulation, but there isn't any,” he said. “It doesn't appear to me that this new legislation will address that issue.”
Many were wary of potential negative impacts from the legislation on big and small players alike.
Sanjeev Sardana, chief investment officer of BluePoint Capital Management in San Mateo, Calif., worries about the uncertainty of the package's full impact on small investment firms like his.
“It's good that it cleans up the markets,” he said. “But how much is it going to cost us to be in compliance? You want to focus more on managing clients' money than on audits, consultants, infrastructure.”
Gilbert Hine, a businessman in San Antonio, Texas, attending the Morningstar conference as a private investor, said it's too early to conclude that the legislation will be a boon for investors given that financial institution lobbyists had a big influence in shaping it.
“A bill that's 1,000 pages long has probably got a lot of unintended consequences in it somehow,” he said.
No matter what's in the final version, he said, the investment industry is innovative enough to be able to overcome any restrictions and accomplish what it needs to.
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