Displaying items by tag: best interest

(Washington)

It has been long in the works. So long, in fact, that many seem to have forgotten about it. Yet here it is—a new fiduciary rule from the DOL, almost three years after the last one was vacated. The new version of the rule has just been delivered to the White House for review by the Office of Management and Budget. This starts a multi-month process that may lead to its implementation, but given how late the rule is arriving it may not get enacted before Trump could potentially leave office. If Trump wins the election, the timing is irrelevant, but if he loses and the rule has been in place less than 60 days when the new president takes over, it can very easily be reversed.

FINSUM: We have not yet seen a good summary of the contents of this rule, but will be covering it as soon as possible. The only thing we have heard is that the new rule is “is primarily a prohibited transaction exemption intended to replace the Best Interest Contract Exemption”.

(Washington)

A whole squad of industry players are trying to stop the SEC’s new Reg BI in its tracks. From individual firms (like Michael Kitces’) to trade groups, many are filing lawsuits to stop the implementation of Reg BI. One of the critical arguments seems to be that the new Reg BI does not sufficiently protect investors under the rules of the Dodd-Frank Act. One principal at XY Planning Network says, simply, “Reg BI makes it more difficult for customers to differentiate between financial planners who are bound by fiduciary obligations and for broker-dealers who may consider their own financial interests”.

FINSUM: Both broker-dealers and RIAs are against this rule. For the former, it complicates life, and for the latter, it muddles some of their “fiduciary” thunder. Nonetheless, it seems the rule is likely to implemented on schedule.

(Washington)

Smaller broker-dealers around the nation are grossly underprepared for the forthcoming Regulation Best Interest. In early April, the SEC decided not to extend the implementation date of the rule because of COVID, which means all firms will need to be ready by June 30th. However, most small broker-dealers are so focused just trying to stay in business, that most are delaying any actions that will help help for the rule. The SEC has said it will take circumstances into account when enforcing the rule.

FINSUM: One of the big issues besides COVID, is that there is a high degree of complacency about the new rule because many think “I prepared for the DOL rule, so we should be covered for this”. However, there are some important distinctions with this rule (e.g. retail investor vs retail customer), and many could find themselves in hot water.

(New York)

In a stat that should absolutely terrify small broker-dealers, a new survey says that for small firms, Reg BI compliance may cost a large portion of your revenue every year. According to the National Society of Compliance Professionals, a small firm with $500,000 in net capital will need to pay $60,000 a year to comply with the new rule. Bigger firms have high costs too—Raymond James will spend $20m up front, and then another $5m per year to comply.

FINSUM: $60,000 a year is a lot of cost to bear for smaller firms, especially because this regulation does not expand business opportunities and will likely only shrink revenue for many.

(Washington)

Many brokers were hoping that the SEC might grant an extension of the deadline to be in compliance with the forthcoming Regulation Best Interest. Advisors must be in compliance with the rule by June 30th, a previously set date that SEC chief Jay Clayton just reiterated last week. The only reprieve the SEC granted was that the regulator would take “good faith efforts” into account in the initial phase.

FINSUM: Many hoped this deadline would be pushed back into the Fall, but the SEC is dead set on June 30th.