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SEC Chairman Commences Consideration of Uniform Fiduciary Rule

SEC Chairman Jay Clayton has solicited public comment concerning the standard of conduct applicable to retail advisers and broker-dealers.  The SEC seeks public input on such topics as the preferred standard of care, conflicts of interest, approaches to regulation, disclosure, technologies, and investor confusion.  Mr. Clayton asks, “If the Commission were to proceed with a disclosure-based approach to potential regulatory action, what should that be?  If the Commission were to proceed with a standards-of-conduct-based approach to potential regulatory action, what should that be?  Should the standards for investment advisers and broker-dealers be the same or different?  Why?”  Mr. Clayton notes that the SEC last solicited such information back in 2013 but that rapidly changing markets, participants, and regulations require updated information.  He welcomes coordination with the Department of Labor as it implements and re-considers the Fiduciary Rule.  The SEC has set up a webform and email box to receive comments.

OUR TAKE: The SEC should adopt a uniform fiduciary or best interest standard for all retail advisers and broker-dealers, and the DoL should incorporate that standard rather than create a separate regime solely for retirement products.  We hope that Mr. Clayton has begun the process to ending this internecine regulatory battle of agencies.


The Friday List: 10 Things to Know about the DoL Fiduciary Rule

Today, we offer our “Friday List,” an occasional feature summarizing a topic significant to investment management professionals interested in regulatory issues.  Our Friday Lists are an expanded “Our Take” on a particular subject, offering our unique (and sometimes controversial) perspective on an industry topic.

Last Monday (May 22), the Department of Labor issued guidance on the implementation of the long-debated Fiduciary Rule.  Most significantly, the DoL did not further delay the basic concept that financial institutions and advisers must apply a best interest standard to advice for IRAs and other retirement accounts.  However, the DoL did back off of some of some of the compliance requirements for the rest of this year and plans to collect more information.  Below is a list of the 10 things you need to know right now about the DoL Fiduciary Rule.


10 Things to Know about the DoL Fiduciary Rule


  1. Applies to IRAs: The DoL Fiduciary Rule applies to investment advice concerning IRAs, ERISA plans, and plans covered by Section 4975 of the Tax Code.
  2. Best Interest standard starts June 9: Beginning June 9, financial institutions and advisers to covered plans must provide advice in the retirement investor’s “best interest,” which includes a duty of prudence and loyalty.
  3. BIC exemption compliance starts January 1: The extensive compliance requirements of the Best Interest Contract (BIC) exemption, which would apply to non-level fee products, are not required until January 1, 2018.
  4. DoL expects changes by January 1: During the Transition Period (June 9-January 1), the DoL will collect additional information from the industry to determine how compliance practices such as the use of mutual fund “clean shares” should re-shape the Rule.
  5. Proprietary products with commissions permitted: During the Transition Period, firms can recommend proprietary products with commissions so long as they satisfy the best interest standard.
  6. Need policies and procedures: The DoL expects firms to adopt policies and procedures necessary to ensure compliance with the best interest standard.
  7. Robo-advisers can rely on BIC exemption: Robo advisers may rely on the BIC Exemption during the Transition Period to ensure compliance with the Rule.
  8. Investment advice narrowly defined: Investment advice, for purposes of the Rule, does not include plan information or general financial, investment and retirement information.
  9. Can rely on written representations from intermediaries: The Rule does not apply if an independent fiduciary provides written representations (including negative consent) that the fiduciary is a bank, insurance company, BD, RIA, or independent fiduciary managing at least $50 Million.
  10. DoL will focus on compliance over enforcement: The DoL says it will prioritize compliance over enforcement during the Transition Period so long as firms work diligently and in good faith to comply with the Rule.

Fiduciary Rule Goes Live on June 9 without Specific Compliance Requirements

The Department of Labor has confirmed that its Fiduciary Rule will go into effect on June 9, although affected firms need not comply with all of the BIC exemption requirements until at least January 1, 2018.  In an FAQ, the DoL confirmed that financial institutions and advisers must comply with the “impartial conduct standard,” which requires a duty of prudence (professional standard of care) and loyalty (advice in the best interest of the customer).  However, firms have flexibility to determine how to ensure compliance with the best interest standard and may offer proprietary products with commissions if they ensure that they meet the impartial conduct standard and the advice is in the best interest of the customer.  Firms should “adopt such policies and procedures as they reasonably conclude are necessary.”  The DoL plans to seek additional information to determine whether to further delay full implementation or change the Rule, which applies to IRAs, ERISA plans, and IRC 4975 plans.

OUR TAKE: Can we stop now?  We actually think the current state of affairs makes the most sense i.e. require a best interest standard without specifically mandating how firms must comply.  The Investment Advisers Act takes that approach, and it has worked pretty well since 1940.