I use a money management firm, Banyan Capital Management , owned and run by Gary Watkins. Douglas Ott, II is a portfolio manager for Banyan, and like Gary is a real student of the market. I have been very satisfied with their results and their integrity.
In their quarterly letter and report, Gary and Doug referred to an element of great disappointment in the financial reform bill making its way through Congress, though there were many other areas of concern.
Currently, not everyone in the financial industries are held to the same standards. Money managers (like Gary) are required to defer to the client’s interests above other considerations. Conflicts of interest and compensation structure must be clearly disclosed. They are also required to disclose their regulatory history.
Insurance agents, brokers and bankers are held to a different standard. As long as an investment is considered suitable they are not subject to the same rules of disclosure.
In his course of due diligence Gary, in the rare instances where he even deals with a security salesman, has uncovered players who plead guilty to financial crimes and have been sued. This disclosure of their regulatory history is not currently required.
A simple rule change to require the same disclosure and integrity from all financial parties that are now required of money managers was included in the original bill, but lobbyists from the financial industry have successfully gutted it in favor of a new watchdog bureaucracy. Gary noted in his letter “History has shown such government offices actually accomplish little toward such a mandate and mostly serve as cover for spineless politicians unwilling to do what is truly meaningful.”
I have written frequently that the biggest cause of the impact of lobbying that the president and so many others deplore so publicly is the growth in regulations that allow the crony capitalists to game the system with political influence that is commonly unavailable to their smaller competitors.
Behind so many regulatory initiatives are large companies gaining competitive advantage not by better serving their customers, but by using their political influence to write rules in their own favor. Many of the elected leaders are ignorant dupes of their influence, played like a cheap violin. Others are quite aware of the game and sell their influence like a street whore.
Instead of trying to control yet another industry and trying to create power by transferring the allocation of wealth from the market to the government , Congress should create clear rules that require disclosure and honesty. By seeking power and control rather than true regulatory reform, Congress seeks to institutionalize rather than eliminate the deceit that plagues our financial markets.