Displaying items by tag: SEC

(Washington)

In what comes as a surprise, the new iteration of the DOL rule may in fact be multiple rules bundled into a package. A lawyer from well-respected industry law firm Drinker Biddle & Reath says they have credible rumors that there will be multiple new rules, and that they will be friendly for those in the industry. The firm says that the new rules will likely be based on the old 1975 five-part test, and that the Best Interest Contract Exemption will be replaced. The new DOL package is also supposed to harmonize well with the SEC’s new Best Interest rule, which was approved in June.

FINSUM: It is good news that this rule is supposed to be more friendly to those in the industry, but it is worrying that there may be multiple rules. The more components there are to the rule, the more likely it will be that it is unclear.

(New York)

Is it a huge deal or not? No one seems to be able to decide. The issue at hand is that the new SEC Best Interest rule explicitly requires brokers to consider costs when recommending products to clients. That is potentially a very big change. However, some say brokers have already been doing this as part of suitability rules, so it may not change practices much. It is important to note that brokers do not need to recommend the cheapest product to clients, but they must take cost into consideration.

FINSUM: Considered in a vacuum, taking cost into consideration has long been a no-brainer. The bigger question is how the SEC decides to enforce this standard. Hindsight will always be 20-20 in an investigation and this could be a big disadvantage to brokers.

(Washington)

In may seem like an eternity in market terms, but 2021 is right around the corner if you are a regulator. The DOL is reportedly racing to get a new DOL rule finalized and implemented before a new administration may takeover in January 2021. The DOL is reportedly set to release a new version of its signature rule this December. But even if it does so, experts say it will a tight push to get a rule implemented before a new administration might take over. In fact, many say the DOL will need to debut its proposal for the new rule by October in order to achieve the January 2021 deadline.

FINSUM: So we know this rule is supposed to be “harmonized” with the SEC’s rule, but there is preciously little additional information. We do think the tight timeline will push the department (which has a new chief after Acosta resigned) to issue a rule more quickly than most in our industry probably realized.

(Washington)

The SEC rule has received a lot of attention. Those in the industry have been moderately positive on the rule because of its degree of leniency, but no one really thinks it is a good rule, especially not investor protection advocates. Today we ready an opinion of the rule by an industry laywer, and it was so compelling, we had to share it in its entirety. The below is from Steven Lofchie of Cadwalader, Wickersham & Taft LLP: “Now, in many respects, we have ended up with the worst of all possible situations: (i) the Reg. BI adopting release fails to make any strong intellectual argument for why it is not reasonable to expect that broker-dealers can be fiduciaries to their clients; (ii) Reg. BI fails to make any distinction between sophisticated and unsophisticated natural person clients (treating Warren Buffett no different from a high school dropout); (iii) Reg. BI imposes significant new obligations on broker-dealers that very well may reduce the willingness of broker-dealers to provide "full-service" brokerage to retail investors and instead result in retail investors seeking any level of advice to potentially pay a much higher charge to an investment adviser; (iv) Reg. BI fails to satisfy any of the critics who wanted a fiduciary obligation imposed on broker-dealers; and (v) states are adopting their own "suitability" rules - urged on by Commissioner Jackson - thereby moving U.S. securities regulation away from a unitary system of regulation to a fractured Brexit system.”.

FINSUM: We have never read any commentary that does justice to the new rule better than Mr. Lofchie’s. It hits the nail on the head on why it is a failure from all sides.

(Washington)

Astute observers will have noticed that President Trump last week nominated Eugene Scalia to head the DOL following Acosta’s resignation. Even sharper readers will know that likely means the DOL’s newest version of the Fiduciary Rule is likely dead. Scalia was instrumental in the first version of the rule’s defeat last year. He was the lead counsel for SIFMA and the body of trade groups that defeated the rule. With him becoming head of the DOL, it seems highly unlikely the Labor Department would advance the newest version of the regulation.

FINSUM: We think Eugene Scalia is the DOL head that most of the industry has been waiting for. He has a reputation as a fierce anti-regulation warrior, so is hard to imagine him advancing the newest version of the Fiduciary Rule to any degree.