Top RIA Compliance News Articles for the Week of May 25, 2018

1. Regulatory Roulette Being Played With Fiduciary Standard (Author- Melanie Waddell, ThinkAdvisor)

“Blaine Aikin, executive chairman of the fiduciary education, training and technology firm Fi360, describes the current state of play for advisors and broker-dealers as they navigate the unending uncertainty in the ‘fiduciary’ standard realm” as “regulatory roulette”. Aikin speculates that the SEC’s conduct proposal faces a potential long uphill, battle and industry professionals are left hanging in the wind while it happens. Adding to that are state regulations and the DOL rule still laboring along in the rear. As of the writing of this article, the 5th circuit court which vacated the DOL rule hasn’t issued the mandate the vacation. The lesson here? According to Aikin: “regardless of where you are on the `advice` spectrum, you could place your bets and guess on what’s going to happen in all these various areas, but really, the only safe place to be is aim high.”

2. SEC’s Clayton: “No Daylight” Between Advisor, Broker/Dealer Duties in Proposed Rules (Author- David Armstrong, WealthManagement.com)

“The SEC chairman said the agency’s proposed rules around improved disclosures and a best interest standard for broker/dealers and advisors are meant to meet the reasonable expectations of clients, regardless of the business model,” Armstrong begins. Armstrong writes the new proposed standards, Regulation Best Interest, all spurned from the question, “What is the expectation of the client?” In other words, finances are uncertain, but you need to be sure your advisor is investing for you and not for themselves. Clayton recognizes that in application, this will differ with broker/dealers. But he insists the idea is identical. He also purposefully omitted the word “fiduciary” in the proposals, knowing the ambiguity surrounding its very definition. Currently, the proposals are free to critique by the public with a deadline in early August.

3. SEC Leaves Securities Lawyers Guessing On Meaning Of ‘Best Interest’ (Author- Tracey Longo, Financial Advisor Magazine)

Longo writes, “Muddying the water a bit more for B-D executives and attorneys studying the proposal is the fact that the SEC appears to have drawn from not only Finra’s suitability rule, but also a suitability standard for advisors that has not been approved, as well as the DOL’s vacated fiduciary rule’s best-interest contract exemptions (BICE).” Ironically, the standards are meant to keep conflicting interests away from investors but the standards themselves are conflicting. Implementation of the standards are expected in the next year, provided there is no delay by the exit of SEC Commissioner Michael Piwowar.

4. Interesting Angles on the DOL’s Fiduciary Rule #92 (Author- Fred Reish, FredReish.com)

Reish’s subtitle of this article reads, “SEC Proposed Reg BI and Recommendations of Rollovers (Part 1)”. Apart from Regulation Best Interest, the SEC has also introduced Standard of Conducts for RIAs, and Customer/Client Relationship Summary for broker/dealers and RIAs. While Reg BI is slightly different from the original DOL rule, the similarities, Reish says, are “striking”. Regarding rollovers, Reish states, “The significance of rollovers being classified as “securities transactions” is that the proposed best interest standard of care applies to recommendations of securities transactions. That is, a recommendation to a participant to take a distribution from his or her 401(k) plan and roll over to an IRA is, in effect, a recommendation that the participant sell the mutual funds in his or her account and rollover the cash proceeds.” A standard of care is also included here.

5.  Piwowar defends SEC’s best-interest rule (Author – John Waggoner, Investment News)

On Thursday, the Investment Company Institute held its annual conference. In attendance was departing SEC Commissioner Michael Piwowar. Things got tense when shots were traded between ICI’s president and Piwowar over the length of the proposals. He criticized the DOL rule as politicized and “unworkable”. He is hoping the new proposals will smooth things out, and believes the comment period is essential to the process. “Mr. Piwowar repeatedly bristled at what he views as other regulators’ encroachment on the SEC’s turf, with the fiduciary rule being a case in point. Another was the proposal to have funds disclose risk management discussions in their annual reports, in part because other regulators saw mutual funds as shadow banks that needed to be regulated as such,” Waggoner says.  

Don’t forget to check out last week’s top RIA compliance news articles on the DOL fiduciary rule, the SECs advice rule, and the broker protocol.  Be sure to check back next Friday for next week’s top articles!