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The New Financial Law and You

Q-and-A explains how reforms affect your money, credit and investments

When Congress took on the nation's financial system in a wide-ranging bill signed into law in July, nearly every aspect of our economic lives was touched. Now, Mary Wallace, AARP's senior legislative representative, helps sort through the details.

Q: How does the financial regulatory reform bill help protect older Americans?

A: There are two sides to this bill that will affect older Americans directly — the banking and credit side with the Consumer Financial Protection Bureau (CFPB) — and then there's the investment side with the Securities and Exchange Commission (SEC).

The new CFPB is going to make sure that when you buy financial products like loans, mortgages and credit cards, you're going to understand what you're buying because the disclosures are going to be in plain language.

Another outcome of this bill is the establishment of an Office of the Investor Advocate at the SEC. This office is like an ombudsman who acts on behalf of investors who encounter problems in their dealings with the SEC or brokers or any aspect of securities transaction, so there's somebody there for folks to reach out to.

Q: What is a fiduciary standard and how does the new legislation affect it?

A: Right now, broker/dealers selling securities are not regulated under a fiduciary duty, which means they don't legally have to put the client's interest ahead of their own. Under the new law, the SEC is in the process of conducting a study to examine this issue, and we hope they will move forward with regulations to either impose the same fiduciary standard as investment advisers, who are already subject to such a standard under the Investment Advisers Act, or a very similar standard.

The fiduciary duty is important for older Americans, because people making decisions later in life have a much shorter window of opportunity to recoup losses. The fact that they can talk to somebody who has their best interest at heart makes it much less likely that they're going to get ripped off.

Q: Does the new law help protect older investors from being taken advantage of by scam artists?

A: To the extent that it enhances and makes clear the disclosures that are given, it's less likely that people are going to get duped. As far as preventing a Madoff-like Ponzi scheme, what the bill does is authorize a lot more money to the SEC for enhanced enforcement.

Q: If an older investor wants to work with a financial professional, how does the new legislation help ensure that that professional is qualified to give advice?

A: The bill authorizes grants to states to adopt and enforce rules governing the use in advertising of so-called senior specialist designations. These designations suggest that salespeople are qualified to give investing advice to people investing for retirement or in retirement.

Q: Does the law do anything to address misleading advertisements about financial products?

A: Not directly, but to the extent that more information is given in clearer language, it is less likely that people will get misled.