The regulatory policy-development process is broken. It’s time for a new approach. It’s time for regulators to start handling the financial services industry like a parent dealing with a toddler – by giving the industry choices instead of allowing endless debates.

The length of time it takes from identifying a regulatory objective until a solution is implemented continues to push the bounds of absurdity. For example, back in 1999, securities and insurance regulators got together and decided it would be a good idea if mutual funds and segregated funds provided simple, comparable, up-front disclosure to clients before they decide to buy.

Fast-forward to 2012, and that basic objective still hasn’t been achieved. Meanwhile, consumers have bought and sold billions of dollars worth of investment funds under a disclosure system that has been condemned as being ineffective.

One of the causes of these endless delays is that the industry reflexively resists any new regulatory initiative. And why not, when it has become clear that quibbling and stonewalling is an effective way of avoiding any new, unwanted rules?

Unfortunately, this situation undermines the public comment process and, ultimately, the regulatory system. When delay becomes an end in itself, regulators are unlikely to get any useful input from the industry.

Worse, the regulators have let this happen. They need to start being more forceful with the rules they do propose, and more willing to scrap proposals sooner if they judge them to be unwise or unworkable. And they need to start giving the industry ultimatums.

Maybe regulators should start giving the industry a straightforward choice. For example, start telling clients what they will pay in trailer fees up-front, or we ban trailer fees – it’s up to you.

This approach could help put an end to filibustering, generate some genuinely useful dialogue between the industry and the authorities and ensure that ultimate investor protection objectives are met rather than being left to wither.

© 2012 Investment Executive. All rights reserved.