Displaying items by tag: SEC

(Washington)

The ruling against the DOL’s fiduciary rule last week threw a monkey wrench into everyone’s assessment of the future of the rule. While the DOL looked less likely to ultimately implement it, the big worry was that the ruling might dissuade the SEC from getting involved in the space. Well, it appears there is no immediate reason for concern, as SEC head Jay Clayton went on the record yesterday to clarify his agency’s position. Clayton said the ruling “hasn’t affected the way I’m approaching this … I haven’t had any discussions with DOL about what it means from a broader perspective of administrative law. But, as far as I’m concerned, we’re moving forward”. Speaking about the timing of issuing a new rule, Clayton said “the sooner the better”.

FINSUM: This is good news. Whether or not you want any fiduciary rule, one needs to be happy the SEC is stepping in because it lowers the likelihood that each state creates its own rule.

(Washington)

So at first the recent court ruling against the fiduciary rule looked like good news for the industry. A court had finally ruled against the rule, which seemed to be a sign that it would never fully be implemented, while also raising the odds it would be reviewed by the Supreme Court. However, Barron’s says that the ruling may have a perversely negative effect as it may cause the SEC to re-examine its efforts at drafting a fiduciary rule. According to the Investment Adviser Association, the ruling “is likely to give pause to the SEC with regard to its own fiduciary rulemaking”.

FINSUM: The SEC likely won’t want to get involved in a protracted legal process over whatever rule it proposes, so it may continue what it has done 2010 with regards to the fiduciary topic—nothing.

(Washington)

If the fiduciary rule was on its last legs before, it is really in trouble now. The DOL’s rule suffered its first significant court defeat this week. A US circuit court struck down the rule, saying it was too broad and “unreasonable”. The court found fault with the government’s broadened definition of what constitutes financial advice and who gives it. The loss means circuit courts have split on the fiduciary rule and it now appears likely the Supreme Court will take up the case.

FINSUM: This is a major blow to the fiduciary rule, and may help usher an even quicker departure for it. It will certainly give the DOL more ground to shift to a new rule co-drafted with the SEC.

(New York)

Advisors need to be very mindful of an old regulation that is taking on new relevance in light of the fiduciary rule. While the DOL’s rule may not be fully enacted, one concept it adopted, which is based on precedent from the ERISA and IRS codes, could be a thorn in the side of advisors. That concept is “reasonable compensation limits”, and is of particular concern to high earning advisors as they will need to look hard at the services they provide and come up with justifications for their pricing. According to a top industry lawyer, this rule will not be undone by a new SEC or DOL rule, so it is here to stay; “Even if the DOL, SEC or Finra roll back the fiduciary rule so that lots of advisor reps and insurance agents are no longer fiduciaries, the reasonable compensation limits would still apply”.

FINSUM: The argument is that this rule’s new relevance will lead to a clearing out of highly priced and highly paid advisors.

(Washington)

There is a currently a great deal of confusion surrounding the fiduciary rule, and understandably so. The rule is technically in force, but not fully, and there is even confusion over the interpretation of the rule and how it should be implied. With that in mind, lets clear up a few myths. The first and biggest myth is that the rule compels advisors to offer the lowest cost investment. It does not. It also does not mean advisors need to choose the “best” investment. While best interest is the rule, this does not mean advisors need to try to attain an impossible standard. Under the best interest contract, the three goals to meet under DOL rules are: “compensation paid to the broker-dealer and adviser is reasonable, recommendations must be in the best interest of the customer, and communications with the customer may not be misleading”. In terms of defining what “best interest” itself means, “’best interest’ requirement says that the recommendation must be prudent, take into account relevant information about the customer, and put the customer’s interests above those of the broker-dealer and the adviser”.

FINSUM: The confusion over the half-baked rule is very understandable, especially given the overall leadership vacuum surrounding its half-implementation.