Fiduciary Rule and Its Effect on Financial Professionals—Part II: Where It Stands Today

A fiduciary rule proposed by the U.S. Department of Labor (DOL) in 2010, has left the industry in flux ever since. With the goal of protecting consumers from conflicting financial advice, the rule has been in debate since 2016. It has been phased in, withdrawn, voted on, vetoed, reviewed, revised and, at present, left to individual states. This series addresses the complexities of the rule and its effect on financial professionals.

See our first post in the series to get the full background on Fiduciary Rule.

Where Fiduciary Rule Stands Today

In April 2018, the U.S. Securities and Exchange Commission (SEC) released a new proposed rule package called “Regulation Best Interest” (also known as Reg BI).

Since then, the SEC has received 6,000+ comment letters and held 200+ meetings with stakeholders.

In a December 2018 speech, SEC Chairman Jay Clayton said the SEC’s Regulation Best Interest proposal is designed to do three things:

  1. Require broker/dealers to act in the best interest of their retail customers.
  2. Reaffirm, and in some cases clarify, the fiduciary duty owed by investment advisers to their clients.
  3. Require both broker/dealers and investment advisers to state clearly key facts about their relationship, including their financial incentives.

As of late May 2019, the DOL jumped back into the ring and solidified their goal to propose a new fiduciary rule in December. According to Labor Secretary, Alexander Acosta, the DOL is working with the SEC.

On June 5, 2019, the SEC approved its investment advice reform package. The rules will become effective 60 days after their publication in the Federal Register and the compliance deadline for brokers will be June 30, 2020.

It remains to be seen what impact this will have on the DOL.

States with Their Own Fiduciary Rulings

Frustrated by a decade of back-and-forth, some states are taking the matter into their own hands. More are expected to do so if the SEC ruling is delayed, or is deemed too weak.

The individual state efforts are frustrating many in the industry. In fact, many financial trade groups have urged states to stand down while the SEC finishes writing its rule, arguing the various rulings will confuse investors and reduce their access to products.

Despite these requests, a handful of states have introduced their own rulings or have announced their plans to do so in the future. As of this writing, the states include:

New Jersey
New York
Washington D.C.

For now, at least, it appears the industry is still in limbo and will continue to be as states charge forward.

What can advisors do? Foremost, ensure your Errors and Omissions insurance contains fiduciary coverage. Even if you practice in a state without their own rulings, you will need coverage when the SEC ruling goes into effect.

In Part III of this Fiduciary Series, we will go more in depth on how these various rulings affect financial professionals and how it should shape their actions.