(Washington)

RIAs were shocked and stunned by the SEC’s new Best Interest rule. The reason why comes down to one word. By substituting an “and” for an “or”, the SEC basically dissolved the necessity for fiduciary duty of RIAs. Fiduciary duty until now was defined by advisors having to avoid all conflicts of interest AND make a full disclosure of all material conflicts of interest. Now the rule will have an “or” instead of an and, meaning RIAs could abide by the rule simply through disclosure, eliminating a key tenet of fiduciary duty. One industry insider commented bluntly, “It guts the RIA industry”, continuing “RIAs are not fiduciaries anymore”.


FINSUM: This is a big deal for the RIA business because it means a whole slew of new advisors can call themselves RIAs but not meet the standard and reputation that has been cultivated over decades.

Published in Wealth Management
Wednesday, 12 June 2019 09:27

SEC Rule’s Vagueness is Up for Debate

(Washington)

Whereas the DOL’s first fiduciary rule was highly specific, the SEC’s new version of the best interest rule is anything but. The first version of the rule was reasonably vague, such as not defining “best interest”, but this new version is even more cloudy. For instance, industry players cannot agree if the rule is stronger or weaker than the last version. Some language has been removed that might make the rule seem weaker, but on the other hand, so much of it is constructed in a manner than tries to use context to make rules, that it is hard to tell. For instance, even the head of trade group Investment Adviser Association says that "People can look at this interpretation and select phrases that concern them or comfort them”.


FINSUM: The interesting thing here is that the SEC has deliberately taken the route of making the new rule implicit versus explicit. The whole methodology is designed around not defining things so that they cannot be worked around, but that makes the whole body itself up for interpretation.

Published in Wealth Management
Thursday, 06 June 2019 08:00

SEC Approves New Best Interest Rule

(Washington)

It happened quickly, more quickly than almost anyone expected. The SEC redrafted its “Regulation best Interest” rule and put it to a vote yesterday, with the new version being approved by a 3-1 vote. The new version is a fairly large departure from the previous one, and went in the complete opposite direction versus expectations. Instead of tightening the rule to put more fiduciary duties on brokers, it did the opposite, eliminating language regarding best interests and seemingly watering down the current suitability standard itself. The vote against the rule came from the SEC’s only Democrat, who said “Rather than requiring Wall Street to put investors first, today's rules retain a muddled standard that exposes millions of Americans to the costs of conflicted advice. Even worse, contrary to what Americans have heard for a generation, the commission today concludes that investment advisors are not true fiduciaries. Today's actions fail to arm Americans with the tools they need to survive the nation's retirement crisis.”.


FINSUM: In addition to the changes mentioned above, it is also worth noting that the new rule significantly expanded the language regarding “solely incidental”, meaning many more brokers do not fall under the rule’s purview. Now it remains to be seen what the DOL does.

Published in Wealth Management

(Washington)

Given the relative dearth of information about the new DOL and SEC rules, analysis and true insight are hard to come by. However, today we have some interesting and relevant “talk” coming out of those close to the DOL. Evidently Trump’s chief of staff Mick Mulvaney has de facto taken over the rulemaking processes at the DOL. The Trump administration was apparently unhappy with slow progress at the agency, so Mulvaney was put in charge of oversight and has ultimate say on all decisions. Mulvaney took over his chief of staff position in January and took on this role some time since. What this means is that the White House is now more directly in charge of the DOL than ever.


FINSUM: The rumor of this is from Financial Advisor IQ (which is quite reputable), and it completely makes sense given that the DOL suddenly came out with a concrete timeline for the new rule’s release (December). This seems encouraging for those that opposed the initial rule.

Published in Wealth Management
Wednesday, 29 May 2019 08:39

SEC Sets Date for Best Interest Rule

(Washington)

The SEC’s Best Interest rule has been making its way through the regulatory machine without much attention lately. Everyone knows it is looming, but no one has been sure of the timing or what the newest iteration would look like. Well, it is becoming clearer now as the SEC has announced that it will vote on whether to adopt the new rule on June 5th. There are four different items the SEC commission will discuss. Some of them are remnants from the last version, but others like the “solely incidental” item, are not clear.


FINSUM: It looks like we will be able to see the new version of the rule within a few weeks. The SEC was facing a major uphill battle to make the BI rule amenable to all sides, and we shall soon see how much progress they made (and how it might fit with a forthcoming DOL rule 2.0).

Published in Wealth Management
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