The Fiduciary Rule is supposed to be dead, right? Well that seems to be more of a myth than reality, as the rule has taken on a life of its own in many forms. Not only is the DOL planning to issue a second version of the rule in 2019, but many states are now creating out their own fiduciary rules. For instance, New Jersey is poised to become one of the first states to adopt a uniform fiduciary standard. Many others already have various fiduciary standards that were put in place after the demise of the first rule. Those that have or are considering changes incude Nevada, Connecticut, California, South Carolina, and South Dakota.
FINSUM: There is a definitely a strong fiduciary undercurrent slowly pushing across the country. However, some states have definitively ruled that a fiduciary relationship does not exist between a client and broker, including New York.
Advisors beware, your state is likely ramping up regulatory enforcement all around you. While all the focus has been on states making and/or enforcing their own fiduciary rules in the absence of the federal rule, they have also been upping their presence in other areas. For instance, Alabama is now getting involved in disputes between brokers and firms, making sure client assets do not get frozen. Massachusetts is enforcing the federal fiduciary rule, and Nevada is making and seeking to enforce its own best interest rule as well.
FINSUM: Our view on this is that there is a power and leadership vacuum in the federal regulators that has eroded states’ trust, all of which is leading to a more fractured regulatory landscape.
There has been a flourish of fiduciary rule-related activity over the last couple of weeks. While the SEC and DOL have been very quiet about their progress on a new rule, Massachusetts and other states have been busy prosecuting and formulating their own rules. Now, a new rule has emerged: Maryland is meeting today to decide whether to make a new rule that would compel all brokers (not just advisors) to adhere to a fiduciary standard. A Senator from Maryland says “In Maryland, we’re trying to do our part to protect our citizens from financial abuses”.
FINSUM: The DOL and SEC need to hurry up and get a new rule out, or at least do some handholding with the states to get them to delay their own rules. The leadership vacuum is causing a flourishing of state-based rules which will fragment the wealth management industry. That situation is helpful to no one.
Yes, yes, we know—yesterday we said the new SEC fiduciary rule would be launched in the fall, now we are saying the spring. Yes, it is confusing, but so is the whole DOL-SEC joint fiduciary rule process. A new article in WealthManagement cites two well-respected experts on the issue as saying that they expect the rule to debut within 3-5 months, which could mean either in May or July, much earlier than the autumn date we reported yesterday. However, aside from timing, there are two huge questions lingering over any new rule. Firstly, how comprehensive will the rule be; and two, will states—which are fed up with the federal government wasting time—accept the new rule, or press ahead with their own.
FINSUM: There is still a very good chance that the new rule will get smashed by political fighting and states will forge ahead in creating a national patchwork of rules.
Advisors need to be aware and involved, say some of the top names in the industry, because the fiduciary rule is headed in directions that nobody wanted. While the DOL rule was far from perfect, what is in the works is worse—a patchwork of dozens of individual state rules set to fragment the US wealth management market. The SEC is working on a harmonized rule, but according to the CEO of Cetera, “If you are not actively engaged in that discussion with the regulators, then you are not fulfilling your obligations to this profession. You should be getting everyone you know, every advisor you know, to be a good citizen”.
FINSUM: We don’t now how much any individual advisor can do to affect the outcome of the fiduciary rule saga, but suffice it to say that things are quite dicey right now and every little bit helps.