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DOL Fiduciary News: April 25, 2018

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Ameriprise CEO James Cracchiolo welcomes new SEC advice rule

InvestmentNews; Apr 24, 2018 @ 3:04 pm

Ameriprise Financial Inc. CEO James Cracchiolo on Tuesday welcomed the Securities and Exchange Commission's new investment advice rule.

During a conference call with analysts, Mr. Cracchiolo was asked his reaction to the SEC's announcement last week.

"So first of all, we're going through the details of this more than 1,000 pages," Mr. Cracchiolo said, according to a transcript of the call. "On the surface, it looks very good in a sense that it is a bit more principles-based, and it's a more appropriate" regulation, he said.

Broker-dealers like Ameriprise spent tens of millions of dollars and untold hours overhauling policies to comply with the Department of Labor's all but defunct fiduciary rule. The rule raised the bar for broker's advice in retirement accounts, but pushed firms to revamp compensation methods and their product platforms.

Many senior brokerage executives, while in favor of some kind of fiduciary standard for brokers, privately complained that the DOL fiduciary rule was difficult to live with and hard to implement. Advisers' businesses slowed down or froze up as they were preparing for the DOL fiduciary rule.

Times have changed. The DOL rule is on the shelf, and the SEC this month has officially proposed its investment advice rule.

SEC rule would create distinct but 'comparable' regimes for RIAs and broker-dealers

Financial Planning; April 24 2018, 5:25pm EDT

The SEC is trying to avoid a wholesale disruption of brokerage industry, but firms could face a major overhaul of their compliance programs should the regulator's proposed best interest standard for brokers become rule.

That's the view of attorneys at the law firm Stradley Ronon, who this week offered a fast-out-of-the-gate analysis of the new package of SEC proposals.

"It seems like the proposals — if adopted — likely would have a lasting and material impact on broker-dealers' operations and compliance," Lawrence Stadulis, co-chair of Stradley Ronon's fiduciary governance practice, said during an online presentation. "We don't really see it necessarily as characterized as a sort of status quo. They would not simply clarify existing SEC and FINRA requirements."

The new regulatory regime would for the first time codify brokers' responsibility to put clients' interests ahead of their own, and compliance slip-ups in that area could lead to regulatory enforcement actions, Stadulis observes. Brokers would need to make specific new disclosures around material conflicts of interest and implement policies and procedures to mitigate conflicts — if not eliminate them altogether.

"Collectively, the requirements potentially have sharp teeth because they would establish a tangible, evidentiary audit trail for the SEC and FINRA to follow in determining whether brokers have complied with both the letter and spirit of the best interest standard," Stadulis said.

The SEC also proposed a new disclosure form requiring brokers and advisors to provide a brief summary of their relationship with clients. The regulator also suggests that brokers should not be permitted to use the term "advisor" or "adviser" to describe their services unless they are acting as fiduciaries under the Investment Advisers Act.

However, the provision addressing the use of titles could have limited effect as it only applies to brokers and their associated persons, leaving open the prospect that other financial professionals (i.e. banks, insurance companies, municipal advisors, commodity trading advisors, etc.) could still call themselves "advisors."

"A lot of people have said this is going to give rise to a whack-a-mole problem, and it does seem like since everybody except broker-dealers could still use 'advisors' that that's very likely to be the case," said Stradley Ronon counsel John Baker.

CFA Institute says SEC proposal needs more definition

BenefitsPRO | April 24, 2018 at 06:27 PM

The Securities and Exchange Commission’s proposed rule for raising the suitability standard on brokers-dealers will potentially result in more investor confusion, according to CFA Institute.

“We were hoping the SEC would have added clarity in certain areas,” said Jim Allen, head of Americas Capital Markets Policy, CFA Institute.

Instead, the proposal risks leading to more “diffusion,” said Allen. The proposed Regulation Best Interest would create a third standards designation, along with FINRA’s existing suitability standard and the SEC’s registered investment adviser fiduciary standard.

CFA Institute, the world’s largest association of investment professionals, according to its website, had recommended several areas of action to the SEC.

But the proposal fails to specifically define personal investment advice, or distinguish when brokers’ so-called incidental advice exemption under the Investment Advisers Act comes into play.

Addressing each of those gaps in the proposal would give brokers and their clients “a clearer perspective of where the dividing line is,” Allen told BenefitsPRO.

Website Matching Small Investors with Fiduciary Advisors Goes Live

Financial Advisor; April 24, 2018

A first-of-its-kind website designed to match smaller investors with fiduciary advisors was launched Tuesday by four advisor groups with more than 5,000 registered investment advisors among them.

“We believe consumers should have a choice between a sales person who provides only incidental advice and a financial planner who provides real financial advice,” said Michael Kitces, co-founder of XY Planning Network.

In addition to XY Planning Network, the website is being staffed by advisor members of the National Association of Personal Financial Advisors (NAPFA), the Garrett Planning Network and the Institute for the Fiduciary Standard.

“Each investor who fills out a card on the website will get the name of two fiduciary advisors,” said institute President Knut Rostad, who spearheaded the new matchmaking service to serve the public and to debunk the claim, often repeated by regulators and lawmakers, that true fiduciary advice is only available to the wealthy.

“We’re launching in [Washington] D.C., but yes, we’d like to take this national,” Rostad told Financial Advisor magazine.

The website will also be used to educate the public about the benefits of working with a fiduciary advisor.

Trump’s DOL Upends Guidance on ESG Investments

ThinkAdvisor | April 24, 2018 at 04:46 PM

The Trump administration unveiled guidance ( aimed at the burgeoning socially responsible investment industry that left some investors scratching their heads.

The Department of Labor, which oversees retirement-plan funds, published guidelines on Monday that said investments based on environmental, social and governance issues aren’t always a “prudent choice” and that such factors shouldn’t “too readily” be considered as economically relevant by fiduciaries. That differs from 2016 guidance from the Obama administration, which said such plans could consider ESG factors without violating their fiduciary duty, opening the way for more retirees to pursue socially responsible investment strategies.

Under the latest guidelines, fiduciaries must “always put first the economic interests of the plan” and make financial factors the main consideration when evaluating investments. They also require managers to make sure any shareholder-engagement activities are likely to enhance economic value of their investments.

Some in the industry said they were surprised by the announcement and its cautionary tone. “The way they distinguish between investment options in the guidance is overly simplistic,” said Lisa Woll, chief executive of US SIF, the Forum for Sustainable and Responsible Investment. “ESG factors for many investors are considered important financial considerations.”

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