Displaying items by tag: fiduciary rule

(Washington)

It comes as no real surprise, but those who have seen the new DOL rule (which was kept very private until recently), have said it is largely exactly what was expected. In particular, those who are currently abiding by Reg BI (implemented today) will be considered to be abiding by the new DOL Rule. The rule is much narrower in scope, lacks the lawsuit component of the first, and interestingly, uses the five-part test of the original rule, but in a way that allows loopholes for firms to essentially decide if they want to abide by the rule or “disclaim away” their need to follow the regulation. About the five-part test, according to Barbara Roper, head of the Consumer Federation of America, “That means firms will essentially be able to choose whether they want to operate under what’s left of the fiduciary standard or disclaim away their fiduciary obligations”.

FINSUM: No big surprises here, this is the DOL rule “light” version the industry was hoping for and expecting.

(Washington)

Most advisors will have heard of Michael Kitces’ lawsuit to try to stop Reg BI from implementation. This lawsuit, often cited in media as XY Planning Network, is an effort by the RIA planning group to block the lawsuit. XY says that the new Reg BI does not represent Congress’ intent with the Dodd-Frank Act, and that it does not creative a uniform standard of conduct for brokers and advisors as the 2010 law intended. Seven states joined the XY effort, but last week a US circuit court of appeals upheld the SEC. This means Kitces and the team may try to take the rule to the Supreme Court.

FINSUM: This effort seems completely doomed to us. In Kitces’ own words “Courts do tend to give [government regulators] deference and the bar is fairly high to prove that they misunderstood the law itself and did not apply it properly”.

(Washington)

Despite some minor discontent, generally speaking the broker-dealer industry has been very tolerant of the new Reg BI. However, those who have been working on compliance and counting their blessings that DOL Rule 1.0 didn’t come into full force could be in for a rude awakening. Many will be aware that Joe Biden is well ahead in national polls at the moment. Polling difficulties aside (of which there are many), the growing risk for the industry is that Biden wins and then quickly moves to cancel Reg BI and install a much stricter rule akin to the first iteration of the DOL Rule. If he were to win the White House and take Congress, he would have wide latitude to undue the current regulatory paradigm. Even without a Congressional win, he would very likely reappoint all the heads of key departments, like the SEC and DOL, which could have a strong effect.

FINSUM: Just as the industry was settling into what looked like it might be a permanent new regulatory environment, things could very messy again. If Trump wins, none of this happens, but given polls it is an increasingly likely possibility.

(Washington)

While the actual language of the new DOL Fiduciary Rule has not been released to the public yet, its contents are growing more and more clear. According to numerous industry insiders, it looks overwhelmingly likely that the new DOL rule will not even attempt to touch the $10 tn pool of IRA assets and will instead leave those under the oversight of the IRS—which is exactly what the industry wants to happens. That means the DOL is only going after 401(k) assets, which at $9 tn, constitute a little under half of the total pool of assets the DOL could have tried to stake its claim on.

FINSUM: This is good news for those worried the new rule would govern IRA assets as well. Another interesting sign from the DOL came last week—the department announced it would now allow 401(k) assets to be invested in private equity deals.

(Washington)

We have some interesting new information about the recently re-drafted DOL fiduciary rule. Last week, the DOL sent what is largely considered to be its new fiduciary rule—entitled “Improving Investment Advice for Workers & Retirees Exemption”—to the OMB. The rule’s text has not been released, so to this point there has only been speculation about its contents. That said, a top industry lawyer familiar with the current process has said he expects the rule to have very close coordination with the SEC’s Reg BI. So much so, in fact that the lawyer—George Michael Gerstein, co-chair of the fiduciary governance group at Stradley Ronon Stevens & Young—expects if a firm is abiding by Reg BI it would likely be entirely exempt from the fiduciary rule. In his own words, “The DOL leadership under President [Donald] Trump has emphasized that they want the SEC to take the lead in terms of conflict of interest regulations, particularly when it comes to brokerage practices. It now seems likely that, if a broker/dealer [B/D] engages in actions that amount to providing investment advice under the Employee Retirement Income Security Act [ERISA], to the extent that the entity complies with Reg BI, that will be sufficient for meeting ERISA’s fiduciary duties.”

FINSUM: It sounds like Reg BI is going to be the dominant rule, and that anyone abiding by it may be exempt from DOL enforcement. This will likely be music to the ears of many in the industry.