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Brokers to be fiduciaries?

Brokers to be fiduciaries?

June 13, 2017 4:24 PM | Print this page

The Department of Labor (DOL) Fiduciary Rule requiring financial advisers to act in the best interests of their clients in retirement accounts and mitigating conflicts of interests that may arise in financial advisers' investment recommendations initially created under the Obama administration came into partial effect on 9 June (though advisers don't need to comply with certain parts of the regulation until January 2018). This is the case despite the fact the rule is currently undergoing a review by the DOL at the direction of President Trump which may result its modification or repeal.

Extending fiduciary standards to brokers: Under new conduct standards, financial advisers are required to
: serve the client's best interests, to charge only reasonable compensation and to avoid misleading statements. Investment News suggests that this concept is 'antithetical' to the way many advisers 'who consider themselves salesman' have been doing business for many years. The article asks the question 'Can a salesman, who lives for commissions, become a fiduciary overnight, as the calendar inevitably flips from June 8 to June 9? The answer is no'.
DOL secretary cannot postpone rule
In an opinion piece published in the WSJ, DOL Secretary Alexander Acosta, described the rule as a 'Another example of a controversial regulation…[which] as written may not align with President Trump’s deregulatory goals'. He added that 'This administration presumes that Americans can be trusted to decide for themselves what is best for them. The rule’s critics say it would limit choice of investment advice, limit freedom of contract, and enforce these limits through new legal remedies that would likely be a boon to trial attorneys at the expense of investors. Certainly, it is important to ensure that savers and retirees receive prudent investment advice, but doing so in a way that limits choice and benefits lawyers is not what this administration envisions'. Despite this, Mr Acosta stated that commencement of the rule couldn't be postponed: 'Respect for the rule of law leads us [the DOL] to the conclusion that this date [9 June] cannot be postponed'.
However, under a temporary enforcement policy the DOL stated: '…during the phased implementation period ending on January 1, 2018, the Department will not pursue claims against fiduciaries who are working diligently and in good faith to comply with the fiduciary duty rule and exemptions, or treat those fiduciaries as being in violation of the fiduciary duty rule and exemptions.'

SEC call for comment on fiduciary duty
Investment News reports that in a move that is 'welcomed' by financial industry opponents of the Fiduciary rule, Securities and Exchange Commission (SEC) chairman Jay Clayton has released a request for comment about fiduciary duty in which he also welcomes the opportunity to 'engage constructively' with the DOL in pursuing 'our ongoing analyses of the standards of conduct applicable to investment advisers and broker-dealers when they provide investment advice to retail

  • the experience of retail investors and market participants thus far in connection with the implementation of the Fiduciary Rule, and how this should inform the SEC analysis
  • the benefits/costs of having multiple standards of conduct: after the Fiduciary Rule comes into effect, there will be different standards of conduct for accounts subject to the DOL rule and those that are not, as well as existing differences between standards of conduct applicable to broker-dealers and those
  • confusion among retail investors about the type of professional or firm that is providing them with investment advice, and the standards of conduct applicable, the effectiveness or otherwise of measures already in place to address the confusion and/or the need for additional measures to address
  • the role potential conflicts of interest related to the provision of investment advice to retail investors in various circumstances been appropriately identified and addressed
  • the extent to which retail investors are aware of the duties that apply when investment advice is provided in new ways (robo-advisers/new technology), or by new market entrants/the need to reform existing regulation accordingly
  • extent to which compliance with DOL fiduciary rule.

The Investment News report adds that even were the SEC to weigh in on investment advice standards, the SEC would have a 'hard time trumping the DOL rule because it will soon become applicable'. The report also notes that the rule may be repealed if the H.R.10 CHOICE Act were passed.
In a separate report in the Investment News, it's suggested that the DOL rule be 'improved, not scrapped'. The report notes that 'While we support the general principles of the DOL rule and believe it will be more beneficial to investors than not, there is room for improvement. It's our hope that the DOL, which has vowed to review the rule between now and Jan. 1, will turn its attention to enhancing the rule — and not scrapping it altogether'.

[Source: the WSJ 22/05/2017; Investment News 2 June 2017 [registration required]; Investment News 3 June 2017 [registration required]; Investment News 1 June 2017 [Registration required] US Department of Labor Field Assistance Bulletin No. 2017-02 Temporary Enforcement Policy on Fiduciary Duty Rule 22 May 2017; US Securities and Exchange Commission: Public Statement from Chairman Jay Clayton June 1 2017: Public comments from retail investors and other interested parties on standards of conduct for investment advisers and broker-dealers; United Stated Department of Labor News Brief: New Fiduciary Rule Guidance from US Labor Department; Full text of fiduciary rule]

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