Displaying items by tag: DoL

(Washington)

The SEC’s Best Interest rule is still being digested by markets. It contains some potentially big changes, including the definition of fiduciary duty. The DOL is yet to release its new Fiduciary Rule, but it will reportedly work smoothly alongside the SEC’s rule. One of the questions that has arisen in this context is whether under the new rules it may be increasingly easy for fiduciaries to accept commissions. The idea of fiduciaries accepting commissions is generally a big no-no in the current paradigm, but top industry lawyers like Fred Reish see this loosening under the new rules. In particular, it is seeming as though broker-dealers could accept commissions when offering fiduciary advice, but the jury is still out on RIAs.

FINSUM: This is just one of the many new changes that are on the horizon. The combination of new rules will likely create grey areas, risks, and opportunities that are not yet apparent.

(Washington)

RIAs need to ready themselves for an onslaught of broker marketing. Changes to the SEC’s rules on fiduciary advice means brokers can now say that they put client interests ahead of their own. This is leading industry experts to expect a marketing bonanza that is expected to help brokers capture market share back from RIAs, who are having their niche diluted by the changing rules. Accordingly, RIAs will need to recraft their narrative, changing marketing language in order to re-differentiate themselves from brokers.

FINSUM: The big loser in the new regulatory push has been RIAs, as they have essentially had their turf artificially eaten away from some shifts in language by the SEC. That said, they have been gaining market share for years, so are in a better position to begin with.

(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.

(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.

(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.