From 1989 to 1992, Todd Buchholz was the ultimate insider as associate director for economic policy at the White House. He now shares his insights as a speaker, author, and regular commentator on the TV show “Nightly Business Report” on PBS. His June commentary found him missing Ross Perot’s needling of Washington about the deficit—a “time bomb” that Buchholz hears ticking again, but to which he says the President and Congress are turning a deaf ear. Buchholz has delivered keynotes before Microsoft, IBM, and Goldman Sachs, and is known on the speaker circuit as much for his wit as his wisdom. Though a House and Senate conference committee was still wrangling the financial reform bill into its final form at press time, Buchholz offered his perspective on its impact.
Financial & Insurance Meetings: The financial-reform bill has been called the biggest regulatory overhaul of the financial system since the 1930s. Is it?
Todd Buchholz: The new law is sweeping—of course, the question is whether it is sweeping away bad stuff, or just sweeping things under the rug. It covers everything from CEO compensation to credit card interest rates to regulating derivatives. Noticeably absent are the following names: Fannie Mae, Freddie Mac, Social Security, Medicare, Pension Benefit Guaranty Corporation. If you asked experts which institutions are most likely to drive the U.S. to the brink of bankruptcy in coming years, these are the names you’d hear. But the coming regulatory overhaul basically ignores them.
FIM: How might insurance companies be affected?
Buchholz: Insurance companies should be pleased that they appear to be escaping the new regulation. Of course, they already face regulations from 50 states, in addition to some federal laws. Still, insurance firms may find some of their business affected. For example, the bill would erect a new consumer watchdog entity. While the watchdog is supposed to focus on such issues as “abusive” mortgages and credit card terms, it could venture outside those areas and crack down on any alleged abuses in insurance company advertising. Furthermore, insurance companies offering annuities and other financial products will have to watch how the regulation may force them to modify those products. [At press time, however, the conference committee working on the financial reform bill was debating an amendment that would classify fixed income annuities as insurance products, thus keeping them away from the regulatory purview of the Securities and Exchange Commission and financial reform.—Ed.]
FIM: In the post-reform era, how will insurance and financial services company meetings be affected?
Buchholz: Financial services companies will have plenty of reasons to meet to discuss and devise policies to comply with the new regulations. Many of the new regulations are, in the eyes of Congress, aimed at preventing consumers from getting ripped off. Therefore, firms will have to scrutinize what they offer to consumers, but also how they advertise products. Moreover, brokers may have to fulfill higher fiduciary duties to clients than they do today, akin to the duties of care required of investment advisers. I would expect many meetings devoted to the definition of fiduciary duty [the obligation to act in the best interest of another party].
FIM: What about the effect on incentive travel? Are there any reform provisions regarding reward trips?
Buchholz: I’m not aware of any, unless it’s buried deeply. I believe that Congress and President Obama did a disservice to many cities across America by demonizing corporate meetings. The President seemed intent on personally bankrupting Las Vegas by characterizing every meeting in that city as a “boondoggle.” Any business traveler knows that a majority of the people spend a majority of their time at meetings learning, networking, and working to improve their businesses. The fact that in the evening attendees might go to a performance of Blue Man Group does not invalidate this. After all, when people are working in their offices, no one blames them for spending the evening at a ballgame or lounging around on their sofas at home.
FIM: In thinking about your audiences of top-performing agents and advisers, what will their burning questions be once a hybrid bill is passed?
Buchholz: The devil and any angels are in the details. Remember, the healthcare bill passed months ago, and yet medical insurance companies, employers, and doctors are still befuddled. Here are the key questions for financial regulation: Will the legislation define “too big to fail?” If it does, will it require breaking up big financial institutions? Will tighter restrictions on credit, ostensibly to protect consumers, end up cutting off credit to households? Banks are currently criticized for being stingy about new lending. This is ironic since their lax lending helped get us into the mess. How can legislation create a “happy medium” between laxity and stinginess?