Displaying items by tag: 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.

(Washington)

A couple of weeks ago we ran a piece quoting the SEC saying that it was trying to get advisors who had violated client disclosure rules to come forward themselves. The promise was that if they voluntarily came forward they would be treated with a much lighter hand. Well, the SEC has showed the other side of that coin this week, saying “Those of you who counsel investment advisors, we hope you will counsel them to participate in the program … If not, we promise that if we find them later we will punish them more severely”.

FINSUM: The SEC is really going to throw its weight around on this issue and it seems like advisors who have broken the rules would be well advised to come forward.

(Washington)

The SEC appears to be following through with the President’s mandate to lower the regulatory burden across all industries. The regulator is in the middle of easing disclosure requirements on companies. According to the Wall Street Journal, the new changes include “expanding the definition of small reporting companies, refurbishing risk-factor disclosure guidelines and streamlining the requirements for registered debt securities and acquired business disclosures”. Companies may now also secretly file IPO documents.

FINSUM: The US, and especially the financial sector, had, in our opinion, become over-regulated in the last decade, so it is good to see an easing of the burden.

(Boston)

Advisors beware, your state is likely ramping up regulatory enforcement all around you. While all the focus has been on states making and/or enforcing their own fiduciary rules in the absence of the federal rule, they have also been upping their presence in other areas. For instance, Alabama is now getting involved in disputes between brokers and firms, making sure client assets do not get frozen. Massachusetts is enforcing the federal fiduciary rule, and Nevada is making and seeking to enforce its own best interest rule as well.

FINSUM: Our view on this is that there is a power and leadership vacuum in the federal regulators that has eroded states’ trust, all of which is leading to a more fractured regulatory landscape.