Displaying items by tag: DoL
Advisors are mostly a conservative bunch, so many are incredulous of the current political polls. Others just don’t want to think about a Biden presidency. That said, if oddsmakers are right and the Democrats take over in a January, a strict new fiduciary rule is likely on the way much faster than almost anyone in the industry suspects. The reason why is the method the Democrats are likely to use to make a new rule. While all of us have seen how slow the rulemaking process has been at the DOL and SEC—and have probably thought of that as the status quo—Barbara Roper from the Consumer Federation of America pointed out this week that instead of crafting a new rule, democrats are probably just going to use the existing Reg BI framework and modify it.
FINSUM: Using an existing rule infrastructure and just beefing up parts of it would be a much quicker process than crafting a new rule. We might have a strict fiduciary rule by June 2021. You have been warned.
Last week Democrats published a wide-ranging agenda for the potential Biden presidency. One section of it—which received much publicity in our niche wealth management world—was about the party’s intent to get rid of the SEC’s new Reg BI. However, another part of that plan was much less covered, but no less important: the party also wants to bring back a true fiduciary rule, potentially very similar to the failed DOL rule 1.0. Interestingly, Barbara Roper, head of investor protection at the Consumer Federation of America, says that the approach the Democrats would likely take is not to create an entirely new rule, but edit and “reign in” conflicts in the existing rule.
FINSUM: So this is quite unsurprising, but very important. What was interesting to us is Roper’s comment about the way Democrats would likely go about this. In our view, modifying an existing rule would be much faster than crafting a new one, which means a new version might come into force a whole lot faster than expected.
Many feel that the current version of the DOL’s Fiduciary Rule might be in jeopardy if Biden wins the election. The thinking is that he would quickly undue the current proposed legislation and replace it with something similar to the Obama era Fiduciary Rule. However, that seems unlikely since many courts have now blocked that version of the rule, clearing saying it overstepped its bounds. That means that a return to the Obama era version is unlikely unless Democrats also win the House and Senate, in which case they could introduce new legislation.
FINSUM: Based on how the old version of the ruled fared in courts, we think it is highly unlikely it returns intact. That said, a much stronger version than the current proposal seems likely if Biden wins.
The SEC’s new Reg BI rule has been in full force since June 30th. However, many brokers are still nervous about complying with the rule as the whole industry is still waiting on more practical guidance. Many firms feel reasonably comfortable following the principals of the rule, but certain items—rollovers being key among them—are still a little uncertain. The SEC has said it will take “good faith efforts” into account in this initial enforcement period, but that is not nearly as comforting as knowing you are following the letter of the law.
FINSUM: Given this is a whole new regulatory package and there is no historical precedent, anxiety is high. We expect new guidance will be issued soon.
It has not gotten much major media attention yet, but there is a big battle brewing between asset managers and the Trump administration. The reason why is a new rule proposal by the DOL which seeks to require private pension plan administrators to prove that they are not sacrificing client returns by putting money into ESG-oriented investments. The proposal was not some by-product or unintended consequence of a larger regulation, it was the point. In the words of Eugene Scalia, head of the DOL, “Private employer-sponsored retirement plans are not vehicles for furthering social goals or policy objectives that are not in the financial interest of the plan”.
FINSUM: In our opinion, this rule by the DOL is very out-of-step with current market trends. We totally understand the need for the DOL to protect retail investors, but Millennials and Gen Xers love ESG and will be the ones inheriting wealth soon. This seems heavy-handed.