The Lines are Drawn
During the 1930s, unregulated U.S. banks invested funds to underwrite speculative stock issues. This, together with the meager 10 percent margin requirement placed on banks by the Federal Reserve, paved the way for the country's quick descent into the depths of the Great Depression. From 1930 to 1933, U.S. banks racked up $7 billion in losses. Nine thousand banks failed, cutting off millions of people from their life savings. As if that were not enough, between 1930 and 1932 some 600,000 homeowners lost their property.

These events set the stage for the unprecedented government intervention and regulation of the financial services industry. One of these measures, the Glass-Steagall Act of 1933, drew lines separating commercial and investment banking activities and served as the regulatory "first response" that would eventually include the Securities Acts of 1933 and 1934 as well as state regulations. The intent of these regulations was to ensure that a failure in one industry segment did not have a critical ripple effect in others.

The Lines are Blurred
In 1982, under President Ronald Reagan, the Savings and Loan industry was deregulated. At the time the President declared, "All in all, I think we hit the jackpot." However, within seven years Congress was forced to adopt a substantial set of reforms and initiate a massive taxpayer bailout. Some estimate that American taxpayers will foot a $1.4 trillion bill in order to correct a deregulation gone very wrong.

The euphoria over a robust economy that followed, coupled with efficiencies inherent in today's information technology, has driven financial service companies to seek an expansion of their markets. The head of Travelers Insurance, billionaire Sanford Weill, and Citibank CEO John Reed were so convinced they could garner support to repeal Glass-Steagall that they consummated a $72 billion merger of Citibank and Travelers Insurance (which controls the investment company Salomon Smith Barney) into a conglomerate named "CitiGroup." Initially in violation of Glass-Steagall, the new company was subsequently given temporary approval to secure a repeal of the Act.

The Government was listening; after banks, insurance companies and investment houses spent over $500 million on lobbying efforts and campaign contributions, the Glass-Steagall Act was repealed in November 1999. Since that time, CitiGroup has successfully marketed some $420 million of CitiBank mortgages to Salomon Smith Barney clients.

• Safeco Insurance Company and Netstock Direct strike a deal.
• Netstock offers a twist on traditional equity investing: the company allows clients to purchase stock based on the dollar amount (as little as $100 per month) of their investment, not on the number of shares. Recently, Safeco's stock has been flirting with its 52-week low and earnings are expected to come in at 85 percent below estimates. Although the financial difficulties experienced by Safeco are primarily insurance-related, it is notable that $50 million is directly traceable to the investment and life-insurance business segments. It is easy to see how the effects of a consolidation can quickly compound the positive or negative conditions effecting company performance.
• E-Trade now controls Telebank.
• AXA Financial (aka the Equitable Companies) controls the Equitable Insurance Company and Donaldson, Lufkin & Jenrette, an investment banking firm.
• Chase Manhattan Bank purchases Hambrecht & Quist, an investment-banking firm.

• Clients can benefit from a holistic approach to financial planning. When dealing with one financial planner for all of their needs, they are assured the opportunity to implement a balanced plan based on their complete financial situation. This trend can be seen growing among income tax firms such as H.D. Vest and H&R Block, where discount brokerage services, mortgages and insurance are now among the services offered to their clients.
• Stiffer competition will likely reduce prices across the board.
• Products and services once only reserved for large companies may be available to small businesses.
• American financial firms can effectively compete with their European counterparts known as "Universal Banks."

• In the event of financial disaster, the effects could be devastating for these companies and their clients. Worst-case scenario would almost certainly result in the government stepping in with another bailout plan.
• The level of industry consolidation due to the mergers may squelch competition among lenders, forcing consumers to accept less advantageous terms.
• Perhaps most alarming to individuals is the dissemination of delicate personal information. The day may be near when a terminally ill patient of a health insurance provider may be turned down for a loan or margin account from an affiliate. Protection of personal information shared internally within the financial services company or externally with a contractual relationship between firms is virtually nonexistent since the repeal of Glass-Steagall. However, the flow of information to external firms without an existing contractual relationship remains prohibited.

The Financial Services Professional of the Future
One thing is certain: in the interest of self-preservation, the financial services professional of the future must have a multidisciplinary approach and an increased depth of knowledge. This mandate will be driven from the natural contractions of an industry on the brink of change, as well as the demands of an increasingly educated and informed client base. Whether the expertise will be captured through requiring individuals to attain multiple certifications and licensing or through a close working relationship with other professionals within the firm remains to be seen.

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