Congress has been actively working to enact financial reform legislation. At the time of this writing, there were versions of a bill in the House and Senate, and there have been more than 100 amendments proposed to the bills. It will be some time before we see a final product, but it will obviously affect those in the financial industry.

A main focus is an attempt to strengthen the Securities and Exchange Commission's powers to better protect investors. While many commentators believe that simply enforcing existing law would achieve that goal, Congress is attempting respond to the failures to detect the Madoff and Stanford Financial frauds.

One significant part of the bill is the amendment to the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940 to require the SEC to create rules to create a fiduciary standard of conduct for a broker when providing personalized investment advice to a retail customer. This would radically change the relationship between a broker and his customer.

Since the dawn of the securities markets, stock brokers were exactly that-brokers. They buy and sell securities for their customers. The relationship has changed over the years, and today we have a de facto fiduciary standard for brokers when making a recommendation-the suitability rule. The impact of placing a fiduciary obligation on brokers will be minimal, as many brokers are now registered as investment advisors. However, careful attention needs to be paid to any rule or regulation that changes 80 years of law, and the SEC will need to address the difference between a broker offering a recommendation, and a discount firm accepting an order.

No one is arguing that Schwab should have a fiduciary duty to disclose information to a customer about a security that the client buys through them, but a slip of the pen can make that a reality.

The bill also allows the SEC to prohibit or limit agreements that require customers or clients of any broker-dealer, or municipal securities dealer to engage in pre-dispute arbitration. Mandatory arbitration clauses inserted into brokerage firm contracts will no longer be enforceable. Interestingly enough, there is no similar protection for securities industry employees, who, by government-sanctioned rules, are forced to mandatory arbitration of their employment disputes with their employers. If the final bill continues this omission, we can expect to see a constitutional challenge to the change, or at least to the SEC-enforced FINRA mandatory arbitration rules for financial industry employees.

Investment advisors have not been overlooked. The bill requires almost all advisors to private pools of capital to register with the SEC. They will be subject to systemic risk regulation by the Financial Stability regulator.

There has been no word on how this is going to be funded. And given the clear evidence of the SEC's inability to monitor the advisors that are currently under its jurisdiction, there is no indication that they will be able to monitor the tens of thousands of new registrants that this bill contemplates.

The Senate version also directs the SEC to establish a program of grants to states for enhanced protection of seniors from misleading and fraudulent marketing of financial products.

New government agencies, new oversight bodies, new fees, more strands in the country's most complicated financial web. The impact will be significant, with new reporting, new obligations, increased regulatory burden, increased litigation costs, and continued tilting of the litigation landscape against the financial industry.