As 2017 begins, the financial services industry is likely to continue to experience dynamic change. These changes may include ongoing discussions about financial regulation among policymakers in the United States and Europe and the continued impact of technological innovations on financial services and the broader economy. How might these trends affect everyday investors and smaller financial advisory practices?
We spoke recently with Tom Quaadman, Executive Vice President of the United States Chamber of Commerce Center for Capital Markets Competitiveness, to learn more. The Center was established in March 2007 to advocate legal and regulatory policies for the U.S. capital markets and advance the protection of investors.
How do you see the safety and soundness of U.S. capital markets compared to the rest of the world?
Quaadman: The U.S. still has the gold standard. We have the toughest capital rules in the world by far. What I think has changed over the last 10 years – the rest of the world is not as inclined to follow [the U.S.] as they used to be. That’s something we have to recognize. There’s a new world out there and we have to find our place in that.
How have financial regulations changed since the Financial Crisis?
Quaadman: The financial system has grown up a lot since 2008, and there are portions of it that don’t have the same regulatory scheme as banks do. As we’re seeing with FinTech, there are new industries arising outside of the regulatory space. That has regulators nervous on both sides of the Atlantic.
How does the Center for Capital Markets Competitiveness communicate the benefits of capital markets to the average investors and the average business owner?
Quaadman: We come at these issues from a unique vantage point – how do we have the policies in place that lead to efficient capital markets that allow Main Street businesses to get the financial products they need to grow and expand? There are a variety of different financial products and services that business owners use to get started and to keep themselves going. We often lose sight of the fact that capital markets exist for allowing investors to deploy capital so businesses can grow. Investors want to get return and businesses need capital to grow. We’ve seen reform that has had some perverse impacts on the ability of businesses to access short-term capital.
The Center for Capital Markets Competitiveness recently released their plan to reform America’s capital markets. How does that fit with your agenda going forward?
Quaadman: We need to restart the growth engine for the American economy. Our economy the last eight years has been growing at about 1% to 2% per year. This is well below the long-term historical growth rates that we’ve enjoyed. We have the lowest labor participation rate we’ve ever had in the U.S. We have declining productivity. That is a situation we cannot allow to continue to happen if we’re going to have any form of prosperity, either today or that we can pass on to future generations. So we brought together over 50 business leaders, policy leaders, thought leaders, and spoke to them for six months – what do we need to do to restart the growth engine? How can we use the financial system to fuel that growth engine? We came up with about 90 pages of different ideas and initiatives that we think the next administration [and] the next Congress should do.
Some small business owners, including financial advisors, are discouraged by the amount of regulation they have to deal with, without the resources of some of the bigger firms. What action steps can they take?
Quaadman: The local voice is key. I think sometimes people in Washington forget that. We are now engaged in a very broad effort where we are trying to energize and bring in local chambers to lend their voice on these issues. Financial advisors cannot underestimate how important that local voice is. Individuals should never underestimate the power that they have in talking to their elected officials and they should feel free to exercise that where they can. It’s very, very important in terms of policy discussions.
Can you talk about the emerging issues of cybersecurity and FinTech in financial services?
Quaadman: We are in this great age of financial innovation and technological innovation. There are three major issues we’re going to have to pay real close attention to in the next several years. For any business, cybersecurity is an increasingly tough issue that management needs to get its head around. The first instinct of the Securities and Exchange Commission is if a business or a firm has a problem, you need to disclose it. There are various agencies in the U.S. government that may say, don’t disclose for national security reasons. So there’s this regulatory conflict that has been lurking below the surface. We’ve talked to the SEC [and] we’ve met with them to see if there are ways that we can make sure that everybody’s on the same page.
FinTech is fascinating. It’s a very substantial industry today. What we recommended in the agenda for the next administration is that Congress should come together to look at FinTech. We want to make sure that we are fostering innovation. We also want to make sure that we have a well-balanced, regulated market.
The third is actually block chain technology. If you have a common electronic ledger, you can have instantaneous clearing and settling. That is incredible market innovation, probably to the same degree as – and maybe even more than – decimalization of stock prices back in 2000.
What are some opportunities you see for smaller financial advisors in their business model?
Quaadman: There are a lot of smaller, disruptive companies out there that advisors I think really should pay close attention to. Look to the future, because there’s a lot of changes coming and I think small advisors can capitalize on it, and investors can capitalize on it, because those new businesses are looking for ways to attract capital.
Investment professionals can download the NatixisTalks app to hear the full discussion with Tom Quaadman on our Politics and Policy podcast. Stay up to date on market and industry trends on our Latest Insights page.
This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed above may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted.
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