“The size of the [bill] is more than 20,000 pages,” said Jim Metz, senior vice president of asset management at CUNA Mutual Group. “Frankly, it's going to take months or years before we know the full impact.”

Weeding through the landmark Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, there are several areas of scrutiny that deal with investor protection reform, ranging from more licensing requirements to conflicts of interests with credit rating firms. Still, the SEC said the new law “creates a new, more effective regulatory structure, fills a host of regulatory gaps, and brings greater public transparency and market accountability to the financial system.”

As required by the act, the SEC is seeking feedback from consumers as it puts together a study that will determine if retail investors actually understand that there are different standards of care applicable to brokers, dealers and investment advisers when it comes to giving out investment advice. A credit union member may turn to a financial professional not realizing that there is a difference between a broker and an adviser and that he or she can be treated differently based on who they're getting their investment advice from.

For one, the SEC will essentially hold broker-dealers to a fiduciary standard similar to that of investment advisers. Metz said the standard currently applied to advisers is suitability, which means each time an investor makes an investment, the standard of care provided is appropriate for that client's needs and his or her timeline. Applying a fiduciary standard requires an adviser to think more broadly and look at the best interests of the investor over a longer period of time.

“From the consumer's perspective, it's a good change,” Metz said. “Advisers have to look at the deeper relationship. They're changing from a transaction focus to one that is more relationship driven.”

Investment advisers must have certain licenses, but with the fiduciary standard, a new series will be required, Metz explained. CUNA Brokerage Services' advisers currently have the required licenses, he pointed out. Advisers at the firm earned the additional registrations as turmoil in the market heated up. For thousands of others, however, having the fiduciary standard will be a new requirement.

Another area set for transformation under the new act is that hedge funds and private equity funds that have $150 million in assets under management will be required to register with the SEC as investment advisers. Regulators will then be in a better position to monitor risk. Metz said for consumers, it strengthens controls, and this new oversight will affect a significant number of funds.

“The government said to not look at hedge funds would have been an oversight. Much of the goal is transparency,” Metz said.

SEC Chairman Mary Schapiro said regulation of private funds is long overdue.

“These funds have flown under the regulatory radar for far too long. The lack of a comprehensive database for private funds has made it virtually impossible to monitor them for systemic risk and investor protection concerns,” she said.

The act also eliminates the so-called 15 client rule that allows advisers to avoid registration while managing substantial amounts of assets on behalf of a large number of investors. It also authorizes the SEC to require registered advisers to maintain records and file reports regarding the private funds they advise.

Credit rating agencies will be monitored differently under the new legislation. The SEC said the procedures and methodologies used will be included with ratings and that each rating will be accompanied by a form disclosing a full range of qualitative and quantitative information. The disclosure is needed because, Schapiro said, “It was an over-reliance on credit rating agencies that contributed to significantly to the explosive growth and then violent contraction of the securitization market.” She cited a government report that indicated 93% of the AAA-rated subprime mortgage-backed securities issued in 2006 are now rated at junk-bond level or are in default.

There are a number of other areas set for transformation, including corporate disclosure requirements involving compensation and the over-the-counter derivatives market. The SEC said it will peel back each area under its regulatory scope over the next 18 months. The commission will be putting together dozens of studies and asking for consumer feedback as it moves forward with implementation.

“I believe the act, especially when fully implemented, will bring us closer to a goal we all share: namely, more stable financial markets that better protect investors and facilitate the capital formation on which our workers, investors, companies and economic growth rely,” Schapiro said.

Meanwhile, Metz said many of the reforms will be felt more so outside of the credit union industry.

“When you look at this [act], it's very much targeted at banks. The thing about credit unions is they've always operated with the best interests of members in mind. There will be certainly be some impact, some good and bad,” Metz said. “Over the last two years, opportunities for credit unions have increased because of the trust and partnership with members. We've seen an increase in investors looking for a trusted adviser.”

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