Displaying items by tag: best interest

(Washington)

One of the big questions in the wealth management industry right now is what is next for the fiduciary rule. The rule has just suffered its first major court defeat and looks like it is down for the count. Yet, advocates are still trying to rally for it and arcane bureaucratic procedures mean outsiders have a hard time understanding how the rule can officially go away. While the DOL does not look likely to appeal the court ruling, another defendant could theoretically step in. Additionally, some argue that since it was the 5th circuit court which delivered the ruling, that its decision only vacates the rule in its region (Texas, Louisiana, and Mississippi). Some also think the DOL may drop out of working on the fiduciary rule altogether, leaving the whole thing for the SEC to manage.

FINSUM: So despite the positive ruling for those opposed to the rule, the path forward is still very uncertain. However, the likelihood of the rule ever coming into full force seems very low and the DOL says it will no longer enforce it.

(Washington)

There are a lot of articles saying that the DOL’s fiduciary rule is on its last legs (and we aren’t sad about it). However, the reality is that despite the ruling, the DOL’s infamous rule lives on. Even if it does not stay in its current form (which seems likely), the fiduciary focus the rule brought to the industry is going nowhere, and the coming SEC rule will likely take what the DOL did to even greater lengths (but hopefully more convincingly). As an example of how the spirit of the rules lives on, here is a comment from the CEO of the Investment Adviser’s Association, who says “Now, are you really going to send a letter to your clients saying, never mind I'm not going to act in your best interest? No. No, it's too late. So some of this is not going to change in real life”.

FINSUM: Fiduciary duty is here to stay but the “fiduciary rule” is not. We think that could be a win for all parties.

(Washington)

So at first the recent court ruling against the fiduciary rule looked like good news for the industry. A court had finally ruled against the rule, which seemed to be a sign that it would never fully be implemented, while also raising the odds it would be reviewed by the Supreme Court. However, Barron’s says that the ruling may have a perversely negative effect as it may cause the SEC to re-examine its efforts at drafting a fiduciary rule. According to the Investment Adviser Association, the ruling “is likely to give pause to the SEC with regard to its own fiduciary rulemaking”.

FINSUM: The SEC likely won’t want to get involved in a protracted legal process over whatever rule it proposes, so it may continue what it has done 2010 with regards to the fiduciary topic—nothing.

(Washington)

There is a currently a great deal of confusion surrounding the fiduciary rule, and understandably so. The rule is technically in force, but not fully, and there is even confusion over the interpretation of the rule and how it should be implied. With that in mind, lets clear up a few myths. The first and biggest myth is that the rule compels advisors to offer the lowest cost investment. It does not. It also does not mean advisors need to choose the “best” investment. While best interest is the rule, this does not mean advisors need to try to attain an impossible standard. Under the best interest contract, the three goals to meet under DOL rules are: “compensation paid to the broker-dealer and adviser is reasonable, recommendations must be in the best interest of the customer, and communications with the customer may not be misleading”. In terms of defining what “best interest” itself means, “’best interest’ requirement says that the recommendation must be prudent, take into account relevant information about the customer, and put the customer’s interests above those of the broker-dealer and the adviser”.

FINSUM: The confusion over the half-baked rule is very understandable, especially given the overall leadership vacuum surrounding its half-implementation.

(Washington)

The fiduciary rule is starting to throw its weight around despite the fact that it is only half-implemented and very much on the regulatory rocks. Massachusetts is currently going after Scottrade under the rule, and now Barron’s says there will be another victim—annuity sales. The asset class saw its total sales fall 8% in 2017 to $203.5 bn, and those figures are expected to fall further this year unless the fiduciary rule is reversed. “The impact to IRA annuity sales was much more pronounced than nonqualified annuity sales”, says an industry expert.

FINSUM: This is a huge market that is being eroded by the rule. Hopefully the SEC and DOL come in with a new rule this summer.