Who Acts with Your Best Interests in Mind?
Navigating the new Reg-BI package can be complicated.
You may recall the now-overturned Department of Labor (DOL) Fiduciary Rule from a while ago which made every broker-dealer and investment advisor act in the best interest of all clients. Because of its overturning by a District Court, things reverted back to the way they were.
Brokers again are heldonly to a suitability standard of conduct. Investment Advisors, however, arestill held to the higher standard of conduct, the Fiduciary Standard, whichrequires that advisors act with duty, care, and in the clients' best interestsat all times.
Many predicted the deathof the Fiduciary Rule but the terms of the court ruling suggest a submission ofrevisions to the court by the end of 2019. No one seems to know what that mightlook like because of its being submitted by a DOL under a differentAdministration than that which submitted the original rule.
President Trump lastweek nominated Eugene Scalia to head the DOL following Secretary Acosta'sresignation. Scalia was instrumental in the first version of the rule'sdefeat last year. He was the lead counsel for SIFMA and the body of tradegroups that defeated the rule.
On June 5, 2019, the4-member Securities and Exchange Commission voted to approve the "Reg BIPackage." The package contains four agenda items, as follows:
- Regulation Best Interest (when making arecommendation to a retail customer)
- Form CRS Relationship Summary (does not have tostate fiduciary status)
- Standard of Conduct for Investment Advisers (arefiduciaries already by statute)
- Interpretation of "Solely Incidental"(an esoteric exclusion)
The SEC is allowing agrace period for coming into compliance with Reg BI and CRS until June 30,2020. These rules are deemed to be final. For much more detailed informationand the bases for this newsletter please see the links below.
I don't know about you,but this stuff makes my head spin, and I am a fiduciary by definition because Iam with a Registered Investment Advisor! Why so complicated? Why not justrequire that all advisors and brokers always act in the best interest of alltheir clients with full disclosure and be held accountable if they do not? Thatis not the way it is right now. And it may get more confusing.
All set, right? Nope. OnJune 26th, the House of Representatives passed legislation 227 - 200 that wouldeffectively derail the Reg BI package by attaching an amendment to a largerspending bill. It would prohibit the SEC from using any of its spendingauthority from Congress to "implement, administer, enforce, orpublicize" the Reg BI Package. Democratic lawmakers feel that the SEC Ruleis "too weak to protect investors from broker-dealer conflicts ofinterest."
A bipartisan budget dealhas just been reached in principle with hopes that it will be signed before theAugust recess of Congress. What may happen to the REG BI Package spendingfreeze rider is unknown at this point as it winds its way through Congress forapproval. On top of that uncertainty, what might happen with the DOL rewrite ofthe Fiduciary Rule by the end of the year?
Why does all thismatter? Because these rules and guidelines provide the behavioral framework forthe advisors and brokers on whom you rely to provide you the sound financialguidance you deserve.
In the middle of allthis confusion you can clear things up yourself. Just ask the person with whomyou regularly deal if they are a fiduciary to you and if they are willing tosign a document saying so. If not, you might wonder why not.
Read more about the DOL's fiduciary rule here.