Reform's Retirement Impact Still Unclear

BOSTON (TheStreet) -- How does financial reform affect the average investor and, specifically, their retirement plans?

It remains hard to say. Since the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in July, many of its measures remain undefined. It may be well into next year until the full impact on portfolios can be gauged.

Stable value funds, for example, used predominantly in 401(k) plans, may or may not face game-changing new regulations conceived to crack down on derivative trading.

These funds, despite their derivative exposure, are considered by most as a fairly conservative asset. Their core is a bond portfolio, but bank and insurance company "wrap contracts" are used to stabilize the ups and downs of those investments.

At issue is whether they will be defined as "swaps," that dirtiest of dirty words from the financial collapse of 2008, and therefore face increased scrutiny and added demands for transparency. New regulations could make them more costly and less available.

In passing the financial reform package, legislators hedged their bets -- pun intended -- and set a 15-month window for the SEC and Commodities Futures Trading Commission to review stable value funds and determine where they should fall in the regulatory spectrum.

New regulations will not, as originally proposed, ban swap dealers from trading with pension plans. Under the final legislation, swap dealers will not be subject to a fiduciary duty, but will be required to disclose conflicts and risks.

ADVICE The Dodd-Frank Act authorizes the SEC authority to impose the same fiduciary duty standards on brokers as investment advisers. Simply put, they would be required to offer only advice and investment recommendations in the client's best interest.

Yet again, however, the reform package was hardly definitive in setting rules, dropping the matter on the SEC for further review. The commission was given six months to review the matter and could go so far as to determine that any financial intermediary who provides personalized investment advice to retail customers has a fiduciary duty.

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