President Obama signed into law yesterday the Dodd-Frank Bill, financial reform legislation that is both a response to the recent near economic meltdown and an attempt to prevent similar disasters in the future.

Before listing highlights of the bill, here are a few broad-based thoughts.  First, there is an old saw to the effect that generals are always planning to win the last war, rather than anticipate how to win the next one.  Only time will tell if this bill, and the regulations it generates, will have addressed the causes of the last crisis rather than anticipate the causes of the next.

Second, despite its 2,300 pages, details for the implementation of the bill will be found in the rules that the regulatory agencies have yet to work out.  As reported in the NY Times on 6/26, industry lobbyists will now focus their resources on the regulators in the hopes of producing results that are favorable to their specific constituencies.  Industry groups have a legitimate right, and obligation, to lobby in their own interests.  The on-going question is who represents the public interest in this process, how it is represented, and how effective is that representation.

Third, the success of financial reform depends, to a certain extent, on public buy-in.  To achieve that buy-in, reform must be clear, understandable, and transparent to the person on the street.  People need confidence that the system is not rigged against them and that government will protect their interests.  This reform needs a spokesman, and needs one soon.

Highlights of the Dodd-Frank Financial Reform Legislation

1. The bill creates a new consumer protection bureau, housed in the Federal Reserve, with the power to write/enforce rules governing mortgages, credit cards, financial products

2. Trading of derivatives will be restricted by requiring bank holding companies to house riskier derivatives in separate affiliates that would not receive federal taxpayer assistance.  (There are several exceptions to the restriction).  Larger banks, like JPMorgan and Morgan Stanley, should be most affected by this restriction and experience earnings reductions.  The costs of this and other regulations will likely be passed on to the consumer.

3. Proprietary trading at large financial firms will be limited, & bank sponsorship of hedge funds and private equity firms will be restricted.  This will also have an effect on banks’ earnings.

4. In order to prevent taxpayer-funded bailouts of financial institutions, the bill establishes a protocol so that the FDIC can unwind large firms.

4. Lenders will be required to retain part of the risk on the loans that they issue.

5. The bill also contains a number of provisions that will have an impact in the area of social investing.   The SEC now has the authority to issue rules to broaden proxy access.  Companies must hold separate shareholder votes on the details of executive compensation, such as golden parachute packages.  Publicly-traded companies will be required to report payments to foreign governments for energy and mineral rights.

6. Large banks and hedge funds will be assessed fees estimated at $19 billion to pay for the cost of implementing the financial reform.

Greg Aloia of Abacus Wealth Partners, LLC brings his legal background and decades of insurance, estate planning and pension consulting experience to provide wealth management advice to individuals, business owners, foundations and pension plan clients. Working together with accountants, estate planners, attorneys, and insurance agents, Greg’s aim is to help clients achieve their personal, professional, and financial goals.

As a trained attorney, Greg has significant expertise in pension plan selection and design and estate planning strategies. He received both his B.A. and M.A. from the University of Notre Dame (1973, 1974) and his Juris Doctor from Cleveland-Marshall College of Law in 1977. He has also earned the Registered Life Planner designation from the Kinder Institute of Life Planning.  Greg is a member of many civic and philanthropic organizations in Philadelphia and New Jersey, including The Bethesda Project and The Sustainable Business Network of Greater Philadelphia, and has conducted financial seminars for many groups, including the Philadelphia Chapter of The Recording Academy and the MusiCares Foundation.

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