Displaying items by tag: reg bi
Western International Securities Inc., which is the first broker-dealer to be sued by the SEC for alleged violations of its Regulation Best-Interest fiduciary rule, is expected to spend at least $1 million on its defense. The broker-dealer is accused of failing to meet its fiduciary obligations by selling $13.3 million in high-risk, unrated junk bonds that were not in the best interest of retirees and other risk-averse retail customers. Western said it plans to “actively defend” itself against the SEC’s allegations. Brian Rubin, a partner at Eversheds Sutherland LLP, estimated that Western’s legal fees will cost anywhere from several hundred thousand dollars to well over $1 million. He believes that it’s likely that the SEC demanded too much to settle due to it being its first Reg BI enforcement case. Since the conduct took place after the effective date of Reg BI in June 2020, the SEC brought the charges under Reg BI as opposed to its predecessor suitability standard.
Finsum: Western International Securities is expected to spend at least $1 million on attorney fees as it fights the first Reg BI lawsuit.
The SEC is planning to beef up its Reg BI enforcement for the rest of the year. The SEC put out a recent bulletin focused on Reg BI compliance and the role that brokers and advisors play in the process. The tone was about how brokers and advisors need to take more responsibility into their own hands regarding compliance. Additionally, more focus and guidance on rollover recommendations is in the pipe, said the SEC. More bulletins on the topic are expected soon.
FINSUM: Rollovers are obviously a major topic for advisors, so this will be closely watched and scrutinized by the wealth management community.
Legal experts are predicting there could be an expansion coming to the DOL fiduciary. Partners at Faegre Drinker are expecting a proposal in the next quarter or two which would label one-time advisors involved in retirement rollover or IRA assets to be labeled fiduciaries. One time advice-givers particularly those trying to establish a relationship would now be labeled as fiduciary advice. Reporters reached out to the Department of Labor but they did not respond to a request for a comment about the change. However, legal federations are expected to challenge the further expansion of the DOL fiduciary classification.
Finsum: This would be a major change to the DOL Fiduciary rule and could really impact advisors trying to gain clients.
Brokers better look out, the SEC has started the new year with a bang. The Commission has mostly been quiet about its potential Reg BI changes since the rule went into effect about 18 months ago. However, a big new warning has come out from Quinn Emanuel’s SEC enforcement practice. There are “strong indications” of much more robust enforcement coming. According to Kurt Wolfe of the SEC Enforcement Practice, “SEC Chair Gary Gensler is under pressure from broad constituencies to show results in the space. For example, at a recent hearing of the Financial Services Committee of the House of Representatives, Rep. Carolyn Maloney (D-N.Y.) encouraged Chair Gensler to ‘take further action to strengthen this rulemaking,”. Further, “the SEC has signaled that regulated firms may not be getting Reg BI right, and senior SEC officials have made it clear that they intend to take an expansive, perhaps aggressive, approach to Reg BI.”
FINSUM: Since Biden took office it has really only been a matter of time until enforcement scaled up. It is now clear that it is coming.
The 2019 Secure Act paved the way for types of assets to be added into 401(k) plans by limiting the legal liability of partners. Since then it’s been a series of new companies announcing the addition of annuities to retirement plans. However, this is a huge chunk of money in the form of a deferred income that advisors won’t necessarily be managing. A growing number of advisory firms are concerned as large amounts of traditional investment being managed by advisors will now be tied up in annuity contracts. A peek behind who the major lobbyist for 2019 secure reveals its mainly insurance companies limiting their liability and existing retirement vehicle supporters like Fidelity. Finally, this could be bad for clients as many institutional investors can get better deals on annuity prices for their clients.
FINSUM: While the care act will undoubtedly affect annuity demand, it could adversely affect advisors in their client’s retirement future.