Displaying items by tag: SEC

(Washington)

In what would come as very welcome news for financial advisors, the newest version of the fiduciary rule may have its implementation delayed. The rule was first thrown out by the fifth circuit court a few years ago, then reproposed and accepted in the early part of Biden’s term. Now it is set to go into effect in December. However, a large contingency of trade groups are putting together a formal request to have the DOL delay the full implementation of the rule to give firms more time to get into compliance.

FINSUM: This is potentially good news, but in the longer term it is likely a moot point since it is widely expected that Biden’s DOL will be redrafting an entirely new version of the rule, and probably one that is closely aligned with the original iteration from the Obama era.

(Washington)

The Department of Labor has just clarified one of the major uncertainties surrounding the current iteration of the fiduciary rule, and the news is not good for advisors. The DOL now clearly states that any invest recommendations that would occur post rollover are directly akin to recommending the rollover itself. NAPA Net summarized the changed, which was clarified by Tim Hauser at the DOL (Deputy Assistant Secretary for National Office Operations at the Department of Labor’s Employee Benefits Security Administration) this way: “Suggesting investments that could occur after a rollover is tantamount to recommending a rollover, and if it meets the rest of the five-part test will constitute fiduciary advice, regardless of how it’s phrased. It doesn’t require the ‘magic words’”.

FINSUM: This is a response to some clever drafting that firms were trying to use to get around the “rollovers are fiduciary advice” mandate. Very important development.

(New York)

If advisors ever feel like hold their fates in the palms of their hands, they’d be right. At this very moment, a big change is looming for all brokers. In the near future, industry lawyers are expecting that SEC chief Gary Gensler will announce a definition of “best interest” within Reg BI. Previously, the thinking had been that defining the rule might actually make it easier to get around, but the emerging industry view is that defining it would indeed make the rule look much tougher.

FINSUM: A definition of “best interest” seems like a foregone conclusion to us at this point. The main question is when, and how restrictive is the verbiage.

(Washington)

When trying to discern the next steps for big regulations like Reg BI and the Fiduciary Rule, the best place to look is the revolving door between top industry law firms and US regulatory offices. And that revolving door is sending very scary messages for advisors. Take for instance these comments from Joshua Lichtenstein, an ERISA and benefits partner at Ropes & Gray LLP's ERISA fiduciary practice: "There are a lot of career people at the DOL still working there and it's not clear to me that their views would have necessarily changed just because of the 5th Circuit's action … So I am expecting to see a pretty fulsome rewrite of the definition of who is a fiduciary”.

FINSUM: The bottom line here is simple. A lot of the same people that wrote and pushed the Obama era fiduciary rule are still at the DOL and are once again empowered under Biden. Why would anything change from their 2017 effort?

(New York)

If you listen to the industry chatter, it appears Gary Gensler, Biden’s head of the SEC, may be poised to define “best interest” as part of the SEC’s Regulation Best Interest. If advisors recall, when the BI rule was first proposed the main criticism was that they did not define the term “best interest”. Many thought this would allow loopholes, while the SEC said it would make enforcement stronger because by defining a term, it actually creates ways around it. According to Blaine Aikin, from Broadridge, “I think there’s an appetite for the Biden administration … We’ve had certain calls from many different audiences: ‘Wouldn’t it have been better if the SEC had actually defined best interest?”. Aikin added that he believes there is “huge collaboration” going on between the SEC and DOL on the topic of Reg BI and Fiduciary Rule synergy.

FINSUM: The big question here is whether a definition of the term will somehow change enforcement in some way. It seems a toss-up as to whether the definition creates loopholes or weakens them, but for the average advisor enforcement makes all the difference.