Whatever happened to what is known as the “Fiduciary Rule,” propagated by the U.S. Department of Labor?
To recap: The Labor Department in 2017 was pretty much set to move ahead with the so-called “Fiduciary Rule,” on April 10. But the Trump team halted the rule’s implementation via an executive order, arguing that it needed yet another review because the Trumpsters argued that it bordered on being anti-business.
If the rule had moved ahead, it would have elevated “all financial professionals who work with retirement plans or provide retirement planning advice to the level of a fiduciary, bound legally and ethically to meet the standards of that status,” according to Investopedia. “While the new rules are likely to have at least some impact on all financial advisors, it is expected that those who work on commission, such as brokers and insurance agents, will be impacted the most.”
Translated further, financial services professionals (including registered investment advisors) must put their clients’ needs first and their advice must benefit them over any concerns of the firm. This, of course, is a gray and controversial area as there could be situations that are the proverbial “win-wins” for clients and firms.
Fast forward to March 2018, and lots of legal action later, the Fifth Circuit Court of Appeals vacated the Fiduciary Rule, a move that the U.S. Chamber of Commerce, Financial Services Institute, Financial Services Roundtable, Insured Retirement Institute, and Securities Industry and Financial Markets Association (SIFMA) applauded. They even issued a statement: “The court has ruled on the side of America’s retirement savers, preserving access to affordable financial advice. Our organizations have long supported the development of a best interest standard of care and the Securities and Exchange Commission should now take the lead on a clear, consistent, and workable standard that does not limit choice for investors.”
Ultimately, the Labor Department stepped away from the issue, leaving the fate of the rule at the feet of the SEC. Interestingly, SEC Chairman Jay Clayton, a Trump appointee, has repeatedly said that the rule will have life, sooner than later.
Earlier this week, Clayton said at the Equity Market Structure symposium in Chicago, as reported via ThinkAdvisor: “I’ve been clear, the sooner the better. We’re working through the process. I’d like to see it very soon. I don’t think there are any new issues. Really, the question is getting the proposal out the door. It’s been around a long time, so I’m looking forward to getting [it] out the door.”
So, to get a little more perspective on this matter, I reached out to Anton Honikman, CEO of MyVest, maker of the Strategic Portfolio System (SPS), a platform for financial advisors. I spoke to Honikman last year about this matter so it seemed correct to have a mini-Q&A with him.
Q: How would you describe the status of the fiduciary rule? Is it dead and gone or will it ultimately go into effect?
Honikman: The Fifth Circuit Court of Appeal’s recent decision to vacate the DOL’s fiduciary rule is just the latest in a long line of obstacles in the industry’s inevitable evolution toward truly client-centric wealth management.
So, I don’t think the fiduciary rule is dead. It will live again, but probably in a revised form and from a different regulator.
The DOL’s rule is too narrow (i.e. retirement accounts) so I question whether they’re the right regulator to implement this in the first place.
Q: How should financial services firms proceed given the current situation with the fiduciary rule?
Honikman: Many firms will take a wait-and-see approach given the many scenarios that could play out, especially with specific investments in compliance and reporting systems.
However, many will continue the process ignited by the DOL rule toward aligning their advice, compensation models, and product offerings with the interests of their customers.
So, given all that I have gathered, it’s safe to say that the Saga of the Fiduciary Rule is in a bureaucratic limbo, which means it may be resurrected or could die a quiet death.
We at FTF News will do our best to keep you posted.