Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, February 19, 1993 TAG: 9302190395
SECTION: EDITORIAL PAGE: A-8 EDITION: METRO
SOURCE: BEN HODGES
DATELINE: LENGTH: Medium
KEEP THE FEDS OUT OF OUR INVESTMENTS
CONGRESSMAN Rick Boucher's proposed Investment Adviser Regulatory Enhancement and Disclosure Act of 1993, introduced on Jan. 26, is a bill that should go unpaid by the U.S. Congress. Simply put, Boucher's proposed law would hyper-regulate the financial-services industry to a degree unrivaled by any known form of modern commerce. While Boucher's bill is well-intentioned in its general goal - that of desiring that our investment decisions are well-informed and ultimately successful - no amount of government regulation will achieve the results his bill envisions.There are numerous flaws in it.
First, the general notion that the federal government needs to protect "unsophisticated investors" from buying "exotic, high-risk investments" is not only absurd in a multitude of ways but it is also governmental intrusion in the marketplace of fully legal products. Boucher's bill would "impose a suitability requirement to ensure that the investment products advisers recommend are suitable for the clients to whom they are being recommended." Think about it. The federal government, currently having a difficult time making wise spending decisions, would be in a position to tell us what investment decisions are "suitable." The American public is better able to make wiser spending choices than the federal government.
Additionally, who is to decide what constitutes an investor as being "unsophisticated"? His bill would have the federal government to somehow designate "sophisticated" and "unsophisticated" investors. How will this be done? Under any definition offered by the government, could any one investor be any less wise than the federal government now is in its own money management?
By way of extension, let's follow the Boucher logic. If this bill is passed, what is to prevent the Department of Transportation from issuing guidelines that limit an automobile purchaser's right to buy a certain type of automobile? Aren't young drivers "unsophisticated," relative to their driving experience? Shouldn't they be prevented from buying "exotic, high-speed" cars? Ridiculous? Yes. Yet, the Boucher bill is woven from the same flawed cloth.
A provision of the bill is additionally troubling in that it calls for the disclosure to the consumer of sales commissions paid to investment counselors. This is a wonderful notion in theory, but as a practical matter, it is wholly unworkable. Shouldn't the local Wal-Mart put both its actual cost and the selling price on all the products it sells? Wouldn't that be really fair to the customer? The serious point here, of course, is that normal commerce does not and cannot function the way big government's do-gooders would prefer.
Of course, I do not wish to defend sleazy financial con-artists. But there are laws already on the books against malfeasance and theft. Investors of all stripes should be wary of all investments, do a thorough job themselves in researching and analyzing prospective investments, and consult only with known, trusted or well-recommended advisers. After all of this is done, the decision should rest with the consumer rather than the government as to whether or not a particular investment option should be chosen. Caveat emptor!
Ben Hodges of Blacksburg is a graduate student at Virginia Tech and a former vice chairman of the Franklin County Republican Party.