Displaying items by tag: best interest

Friday, 15 January 2021 14:46

Biden May Overturn Reg BI


The general understanding among wealth management regulatory experts has been that the Biden administration was not overly likely to overturn Reg BI. However, that faith might be waning in the face of some developments out of Congress. The House Financial Services Committee, led by Maxine Waters, has been adamantly pushing for Biden to completely overturn the rule and bring in new legislation. To this point, most thought Biden would simply install a new SEC chair that would become a stronger enforcer of the rule rather than trying to write an entirely new one. And with the name of former prosecutor Preet Bharara as the rumored next head of the SEC, the focus on enforcement makes sense.

FINSUM: We wonder to what extent Biden might reward his Democratic allies in Congress by pushing an agenda that writes an entirely new rule. On the one hand, it does not appear too farfetched, but on the other, it seems Reg BI may be way down the priority list given the pandemic.

Published in Wealth Management
Monday, 11 January 2021 14:11

SEC Makes a Big Move to Tighten Reg BI


The SEC just made its first big move to tighten regulations ahead of Biden’s inauguration. While the SEC did clarify digital marketing rules a couple of weeks ago, that shift was largely welcomed as the previous guidelines were vague and very outdated. The big change this week is that the SEC is beefing up its Reg BI compliance program. Specifically, it is scaling up its testing program to make sure firms are complying with Reg BI. According to a note from the SEC, “Division staff has assessed the results of its initial Regulation Best Interest examinations and now that approximately six months have passed since the Regulation Best Interest compliance date, the Division intends to begin its next phase by conducting more focused examinations … beginning in January 2021”.

FINSUM: Enforcement of Reg BI has been pretty lax to date, but this feels like a new phase is beginning. Most insiders in the business think the Biden administration’s approach will be to intensify Reg BI enforcement rather than write a new rule, so this step makes logical sense within that.

Published in Wealth Management


The election is far from decided, but the outcome may very well fall into Biden’s favor. With that in mind, it is worth considering how the industry’s regulatory agenda would change were he to become president. He would almost surely replace Jay Clayton as head of the SEC, but the bigger questions are about Reg BI, the new DOL rule, and whether his administration would seek a strong fiduciary standard. Most industry lawyers think Biden would not seek to throw out existing rules and draft entirely new ones. That would take a great deal of work and time. Much more likely, it appears, would be amendments to Reg BI. The infrastructure of the rule is such that simple tweaks could make it much more robust. Chief among those changes would be defining what “best interest” means and changing the approach to enforcement.

FINSUM: If the SEC put a wide-ranging definition of “best interest” in place and changed to stricter enforcement, you would quickly have a much more robust rule.

Published in Wealth Management
Thursday, 24 September 2020 15:21

How Reg BI Makes Brokers Legally Bulletproof


Reg BI was technically implemented three months ago, but it is still a little bit of an unknown quantity. More than just the shortness of its tenure, the fact that the SEC has explicitly said it is going to be light on enforcement during COVID means the pace of adaptation and understanding has been slower. Well one interesting aspect is emerging—the rule seems to give brokers a huge legal advantage when they get sued. According to a panel of top industry lawyers, the “informed consent” part of the rule means that Reg BI essentially creates a buyer-beware trap for clients. This will make it very hard to prevail over an advisor in a dispute. According to a law professor at Georgetown “If you take the recommendation, that becomes consent … The commission uses words that will live a long time on the defense side. When there has been full and fair disclosure, informed consent is present where the customer affirms by accepting the recommended action”. The language of the rule is claimed to be so obtuse that most clients will never read or understand it.

FINSUM: This was hinted at by those that opposed the real, but the scale of the advantage for brokers is only now being realized. That said, the effectiveness of Reg BI will largely come down to enforcement, which will likely shift over time.

Published in Wealth Management
Friday, 11 September 2020 15:01

The New DOL Rule Isn’t the Win You Think


Most brokers out there have been relatively happy with the new DOL Rule. No one likes new regulations, but it is reasonably un-disruptive, and miles easier to stomach than the first DOL rule. However, under the surface lurks another problem that the new DOL rule has actually worsened—the push for state-level fiduciary rules. Many states had been pushing for their own fiduciary rules, and some had been standing by to see what the federal rule would look like. With the adoption of a new fiduciary rule for Massachusetts yesterday, it is clear that many states are not satisfied with the new federal rule and will keep designing their own. Thus, the new threat is a patchwork of differing fiduciary regulations across the country.

FINSUM: The idea of a fiduciary rule is kind of like playing whack-a-mole at present. You may “win” in one area, but then it pops back up in another.

Published in Wealth Management
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