Displaying items by tag: SEC

(Washington)

Here is an eye-opener for you: odds are that 7 months from today the SEC’s Reg BI and the new fiduciary rule will be no more. The Democrats—who are currently leading in the polls—have published an action plan for a potential Biden presidency. Included in it was a clear plan to reverse the current version of Reg BI, all according to a section of the report entitled “Guaranteeing a Secure and Dignified Retirement”. On page 24 of the document, Democrats say “Democrats believe that when workers are saving for retirement, the financial advisors they consult should be legally obligated to put their client’s best interests first. We will take immediate action to reverse the Trump Administration’s regulations allowing financial advisors to prioritize their self-interest over their clients’ financial wellbeing”.

FINSUM: Because of how polls are trending, these kind of manifestos are becoming very relevant for advisors to consider.

(Washington)

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.

(Washington)

Brokers all over the country have been nervous about enforcement of the new Reg BI rule since its implementation a couple weeks ago. While the law itself is understood, enforcement of its particulars is not, as there is no precedent or real world examples to go on. For its part, FINRA recently made comments about its forthcoming enforcement policy. According to the Associate General Counsel of FINRA, “by and large, we're going to be looking at the compliance obligations of policies procedures and training, and we're not looking at it to say
‘did a firm do everything the way that we would have done it,’ or ‘did they do everything perfectly.’ We're looking to see do they understand the obligations, and do they make a good faith effort to implement the changes that needed to be made and incorporate those in their policies procedures and training.”

FINSUM: This is generally what firms have been expecting because it is what has been broadcast, but this is a little more comforting than previous efforts out of other regulators.

(Washington)

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.

(Washington)

A top industry legal firm—HaynesBoone—has done a nice brief write-up about the new DOL rule. The piece summarizes the key components, including the five-part test and key exemptions. The new rule brought back the 1975 standard five-part test for determining who is a fiduciary. The test consists of:

1. Render advice as to the value of securities or other property, or make recommendations as to the advisability of investing in, purchasing, or selling securities or other property;
2. On a regular basis;
3. Pursuant to a mutual agreement, arrangement, or understanding with the employee benefit plan, plan fiduciary, or IRA owner;
4. The advice will serve as a primary basis for investment decisions with respect to the employee benefit plan or IRA assets; and
5. The advice will be individualized based on the particular needs of the employee benefit plan or IRA.

Now to the exemptions. According to HaynesBoone “fiduciaries may not (i) engage in self-dealing, (ii) receive compensation from third parties for transactions involving such plan assets, or (iii) purchase or sell investments with plans when acting on behalf of their own accounts. Provided the conditions of the exemption are met, the Proposed Exemption would allow investment advice fiduciaries to receive compensation for certain transactions that would otherwise be prohibited.” HaynesBoone continued “The Proposed Exemption would require investment advice to be provided in accordance with the “impartial conduct standards.” Under this standard, investment advice fiduciaries must provide advice that is in the retirement investor’s “best interest” (i.e., in adherence to the duty of prudence and loyalty), charge only “reasonable compensation,” make “no materially misleading statements,” and satisfy various other requirements, each as further described in the Proposed Exemption. The Proposed Exemption also requires certain disclosures be made to retirement investors, the implementation of certain policies and procedures, the performance of certain retrospective compliance reviews, and the adherence of recordkeeping obligations”.

FINSUM: This coverage makes it clear why this is such an industry-friendly rule versus the first iteration.