Displaying items by tag: SEC

(Washington)

2020 has seen both the implementation of the SEC’s new Reg BI rule as well as the introduction of a new DOL Fiduciary Rule proposal. While both have faced opposition on all sides, it was uniformly less intense than the scorn the first fiduciary rule received. That said, Morningstar is reporting that plans are underway to scrap the new Reg BI rule, which only became official in June. More specifically, Biden is planning to scrap both rules if he takes office. That is obviously still a very big if, but the process is quite clear. Biden would appoint a new head of the SEC, who would then scrap the rule. Or, the Dodd-Frank act could be amended to make clear a full fiduciary rule needs to be in place.

FINSUM: There has been plenty of talk about Biden potentially scrapping the new DOL rule. However, very little has been said about him getting rid of Reg BI, likely because it would have been implemented many months before inauguration. Therefore, this is a significant change that many advisors and firms are not aware of.

(Washington)

After the shock of the last rule and the relatively benign impact of the SEC’s Reg BI, most advisors are taking the new Fiduciary Rule from the DOL in stride. There has not been nearly the outpouring of upsettedness as the first time around. However, within the mostly mundane-seeming rule, there is some little-noticed language that could cause difficult issues, say compliance professionals. Specifically, in the preamble to the rule proposal, the DOL said it had changed how it interprets the old 1975 five-part test for fiduciary status. According to David Kaleda, principal, Groom Law Group, “So, this is another attempt by the DOL to state that, ‘Whatever you think advice may be, it may be more than that’ … Advisers and broker-dealers need to think about whether their day-to-day interactions are within the five-part test”.

FINSUM: This is another hidden surprise in this rule that could become much more complicated. It almost seems the DOL snuck some vague language into the current version of the rule in order to give themselves broader latitude for enforcement later on. This makes sense too, as it was the same approach the SEC used with Reg BI. Vague language makes it harder to find loopholes.

(Washington)

Most brokers out there have been relatively happy with the new DOL Rule. No one likes new regulations, but it is reasonably un-disruptive, and miles easier to stomach than the first DOL rule. However, under the surface lurks another problem that the new DOL rule has actually worsened—the push for state-level fiduciary rules. Many states had been pushing for their own fiduciary rules, and some had been standing by to see what the federal rule would look like. With the adoption of a new fiduciary rule for Massachusetts yesterday, it is clear that many states are not satisfied with the new federal rule and will keep designing their own. Thus, the new threat is a patchwork of differing fiduciary regulations across the country.

FINSUM: The idea of a fiduciary rule is kind of like playing whack-a-mole at present. You may “win” in one area, but then it pops back up in another.

(Washington)

While it has not been nearly as tumultuous as the first time around, the DOL 2.0 rule-making and approval process has already been rocky. There was a great deal of upsettedness over the short comment period. So much so that the DOL reversed course and offered a public hearing to gather more opinions. That was held this week. However, the DOL says no further public hearings or comment period will be extended (despite previously mentioning this possibility). Accordingly, it is looking very much like a rule will be brought forth ahead of the election, significantly in advance of where the timeline looked to be even a few weeks ago.

FINSUM: The DOL is really pushing the pace here. It seems like this might get on the books before the election, but it would still be quite easy for Biden to undo if he takes office.

(Washington)

Advisors are mostly a conservative bunch, so many are incredulous of the current political polls. Others just don’t want to think about a Biden presidency. That said, if oddsmakers are right and the Democrats take over in a January, a strict new fiduciary rule is likely on the way much faster than almost anyone in the industry suspects. The reason why is the method the Democrats are likely to use to make a new rule. While all of us have seen how slow the rulemaking process has been at the DOL and SEC—and have probably thought of that as the status quo—Barbara Roper from the Consumer Federation of America pointed out this week that instead of crafting a new rule, democrats are probably just going to use the existing Reg BI framework and modify it.

FINSUM: Using an existing rule infrastructure and just beefing up parts of it would be a much quicker process than crafting a new rule. We might have a strict fiduciary rule by June 2021. You have been warned.