Investment Advisers: a Stiffer Law

SACRAMENTO —  Declaring that new state regulations governing financial planners do not go far enough, Senate leaders endorsed legislation Tuesday to further tighten the law on free-wheeling investment advisers operating in California.

Sen. Joseph B. Montoya (D-Whittier), author of the legislation, said the bill is aimed at unscrupulous investment advisers who have bilked the public out of “hundreds of millions of dollars.”

Montoya’s bill, which has bipartisan political support, would require financial planners to register with the state and provide clients with detailed disclosures of possible conflicts of interest. They also would have to furnish written contracts containing an itemization of fees and description of services to be provided, along with a financial plan identifying all investment recommendations. The bill is expected to come up for a full Senate vote next week.

Some of the bill’s provisions are contained in new administrative regulations that were drafted by the Department of Corporations and went into effect Sunday.

The regulations make it fraudulent for financial advisers to fail to disclose to clients any financial interests they have in investments they are recommending.

The Senate leaders praised the Administration’s efforts but said the regulations did not go far enough to protect the public.

Montoya was joined at a Capitol news conference by Senate President Pro Tem David A. Roberti (D-Los Angeles); Sen. Barry Keene of Benicia, chairman of the Democratic Caucus, and Sen. John Seymour of Anaheim, chairman of the Senate Republican Caucus.

Seymour said no law could completely protect investors from making unsafe investments. However, he said such things as requiring full disclosure and a written contract would at least provide the public with tools to make educated decisions.

“If the salesman says it, then he ought to be at least willing to put it in writing,” Seymour said.

Another version of the bill was proposed last year, but it stalled in the Senate because of opposition from Gov. George Deukmejian.

A key sponsor of the new bill is the California Assn. of Financial Planners. Opponents of the bill--primarily competitors in the business, such as accountants and savings and loan officials--accuse the association of trying to make financial planners a recognized professional class regulated by the state. This would allow them to restrict entry into their profession, as is now done by a wide variety of groups, such as doctors, nurses, realtors and barbers.