Displaying items by tag: reg bi

(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)

The SEC issued a pretty stern warning (or reminder, depending on how you look at it) to brokers this week. SEC chairman Jay Clayton issued a very direct statement addressing broker-dealers and saying that they needed to take “special care” when making 401(k)/IRA rollovers because form CRS, as part of Reg BI, would cover such transactions. Clayton also emphasized that 401(k)/IRA rollovers are considered a primary feature of the rule, saying that it was one of the “most significant enhancements over the status quo … should be approached with care”. He concluded “Firms should recognize that these recommendations are subject to Reg BI and ensure that their policies and procedures meet the requirements of Reg BI, the Advisers Act and Form CRS, as appropriate”.

FINSUM: Just in case anyone wasn’t clear, the SEC just made it abundantly obvious that there is no wiggle room here. The most interesting thing to us in this statement is how he seemed to indicate this will be the key focus of the SEC (which will likely be reflected in enforcement).

(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.

(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.