Displaying items by tag: SEC

(Washington)

Most advisors will have heard of Michael Kitces’ lawsuit to try to stop Reg BI from implementation. This lawsuit, often cited in media as XY Planning Network, is an effort by the RIA planning group to block the lawsuit. XY says that the new Reg BI does not represent Congress’ intent with the Dodd-Frank Act, and that it does not creative a uniform standard of conduct for brokers and advisors as the 2010 law intended. Seven states joined the XY effort, but last week a US circuit court of appeals upheld the SEC. This means Kitces and the team may try to take the rule to the Supreme Court.

FINSUM: This effort seems completely doomed to us. In Kitces’ own words “Courts do tend to give [government regulators] deference and the bar is fairly high to prove that they misunderstood the law itself and did not apply it properly”.

(Washington)

For the last several months, brokerage firms have been preparing for the implementation of the SEC’s Reg BI, which comes into effect next Tuesday (June 30th). The driving force behind the rule has been the SEC’s current chief, Jay Clayton. However, those paying attention will have seen that the whole Reg BI project was throw in doubt this week as President Trump has just nominated Clayton to be the US Attorney for the Southern District of New York. Clayton is apparently interested in the role. This raises serious questions about how seriously the rule will be enforced as the entire rule was basically Clayton’s project. According to Phyllis Borzi, who formerly headed the DOL, “It matters in the sense that this [Reg BI] was his baby, he was determined to push it through…”, its “effectiveness” she said “will rise and fall on how well it’s enforced because the rule itself leaves a lot of ambiguity, so it will be critical how it’s implemented”.

FINSUM: If Clayton leaves, it will create a major void for the rule, including, its enforcement, changes, and focus.

(Washington)

Despite some minor discontent, generally speaking the broker-dealer industry has been very tolerant of the new Reg BI. However, those who have been working on compliance and counting their blessings that DOL Rule 1.0 didn’t come into full force could be in for a rude awakening. Many will be aware that Joe Biden is well ahead in national polls at the moment. Polling difficulties aside (of which there are many), the growing risk for the industry is that Biden wins and then quickly moves to cancel Reg BI and install a much stricter rule akin to the first iteration of the DOL Rule. If he were to win the White House and take Congress, he would have wide latitude to undue the current regulatory paradigm. Even without a Congressional win, he would very likely reappoint all the heads of key departments, like the SEC and DOL, which could have a strong effect.

FINSUM: Just as the industry was settling into what looked like it might be a permanent new regulatory environment, things could very messy again. If Trump wins, none of this happens, but given polls it is an increasingly likely possibility.

(Washington)

The SEC issued a pretty stern warning (or reminder, depending on how you look at it) to brokers this week. SEC chairman Jay Clayton issued a very direct statement addressing broker-dealers and saying that they needed to take “special care” when making 401(k)/IRA rollovers because form CRS, as part of Reg BI, would cover such transactions. Clayton also emphasized that 401(k)/IRA rollovers are considered a primary feature of the rule, saying that it was one of the “most significant enhancements over the status quo … should be approached with care”. He concluded “Firms should recognize that these recommendations are subject to Reg BI and ensure that their policies and procedures meet the requirements of Reg BI, the Advisers Act and Form CRS, as appropriate”.

FINSUM: Just in case anyone wasn’t clear, the SEC just made it abundantly obvious that there is no wiggle room here. The most interesting thing to us in this statement is how he seemed to indicate this will be the key focus of the SEC (which will likely be reflected in enforcement).

(Washington)

While the actual language of the new DOL Fiduciary Rule has not been released to the public yet, its contents are growing more and more clear. According to numerous industry insiders, it looks overwhelmingly likely that the new DOL rule will not even attempt to touch the $10 tn pool of IRA assets and will instead leave those under the oversight of the IRS—which is exactly what the industry wants to happens. That means the DOL is only going after 401(k) assets, which at $9 tn, constitute a little under half of the total pool of assets the DOL could have tried to stake its claim on.

FINSUM: This is good news for those worried the new rule would govern IRA assets as well. Another interesting sign from the DOL came last week—the department announced it would now allow 401(k) assets to be invested in private equity deals.