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DOL Fiduciary News: February 5, 2018

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Insurance industry pushes for regulatory harmony on best-interest standard; Friday, February 02, 2018 3:36 PM ET

A common theme emerged when the National Association of Insurance Commissioners asked the industry to comment on possible revisions to its regulation for ensuring annuity transactions are in the best interest of customers: Stakeholders want to see harmonization across regulatory bodies.

That goal has been difficult to achieve as different regulators work to craft a higher standard for investment advice, which includes the annuity transactions many life insurers rely on.

The Department of Labor opted to delay and reconsider major elements of its Conflict of Interest rule, also known as the fiduciary rule, in November 2017, about a month before the rule was slated to take effect. The agency said it would undertake a further review of the rule and decide whether it wants to make additional changes. At the same time, the Securities and Exchange Commission has been engaging the industry on a unified best-interest standard and indicated that it could have a proposal of its own by October. The fiduciary rule would classify financial and retirement advisers under a "fiduciary" standard, which is stricter than the current "suitability" standard.

Meanwhile, comments on the NAIC Suitability in Annuity Transactions Model Regulation were due by Jan. 22.

Disclosure not the solution for a fiduciary standard, industry reps agree

InvestmentNews; Feb 2, 2018 @ 2:21 pm

Representatives from both the brokerage industry and the registered investment advisory side of the advice business expect the Securities and Exchange Commission to produce some kind of proposal this year for a fiduciary standard for brokers.

And both agreed that simply requiring brokers to disclose potential conflicts of interest will not satisfy the need for an effective fiduciary standard.

The topic was the focus of a panel discussion at TD Ameritrade Institutional's LINC 2018 conference in Orlando on Friday.

"Our position is, you cannot disclose away your fiduciary duty," said Karen Barr, CEO of the Investment Adviser Association. "Disclosure does not absolve you from acting in the best interest of your client. If the SEC cannot come up with a standard for broker-dealers that is robust enough that brokers giving advice should act in best interest of clients, then brokerage reps should not hold themselves out as financial advisers."

"We think the path forward is to focus on a best-interest standard for broker-dealers," said Kevin Carroll, managing director and associate general counsel at the Securities Industry and Financial Markets Association, which represents brokers. However, he said he opposed the idea of having titling requirements. "You could think of an infinite number of titles a broker could fall back on," he said.

"Our current position is we would like to see the SEC address this just under the 1934 Act for broker-dealers, and leave Investment Advisers Act alone," said Ms. Barr.

"We believe an SEC best-interest standard could form the basis for relief from the DOL rule," said Mr. Carroll. "We are hoping the DOL rule will be stricken in its entirety." 

How Much Do You Know About the Fiduciary Rule? Time to Find Out. [WSJ quiz] 

Wall Street Journal; Feb. 4, 2018 10:07 p.m. ET

Let’s say your financial adviser, who has a clean record, has won your trust with a series of compelling presentations, showing how he generated healthy returns for other clients like you. He has promised to manage your money as carefully as if it belonged to his family, with only appropriate investments. But did he use the magic word “fiduciary”?

If not, there is a chance that, regardless of what professional title he uses, he doesn’t hold himself to a fiduciary standard—meaning he isn’t obligated to always put your interests ahead of his own.

In some circumstances, some investment advisers are required only to recommend mutual funds and other products that are “roughly suitable” for their clients. By that standard, those funds could be more attractive to the adviser than to you, because of the fees he can earn if you buy them.

New Labor Department rules, which started to come into effect last year, require that in some instances you must be advised by a fiduciary. But Wall Street is pushing back, and the final definition of what makes someone a fiduciary remains contentious. 

Critics Want New CFP Board Code to Ban Certain Conflicts

Financial Advisor; February 2, 2018

As the CFP Board closes its comment period today on its complete overhaul of its proposed Code of Standards, the board finds itself at the center of one of the most contentious issues facing the industry—advancing a comprehensive fiduciary standard for its 80,000 certificate holders for the first time in a decade.

Not surprisingly the proposal, which is expected to be approved by the second quarter and go into effect in January 2019, is eliciting strong reaction from opposing sides of the industry. (A side-by-side comparison of the new and existing CFP Board Codes of Standard is available here --.

Last week, the CFP Board declined an aggressive industry request to delay its proposed standards so that regulators could formulate their own rules.

Now the certification group will begin reviewing the more than 120 comment letters it’s expecting to flood in on the proposal, including some of the more critical missives from the Consumer Federation of America, the Institute for the Fiduciary Standard and NAPFA (the National Association of Personal Financial Advisors).

These groups allege that the proposed CFP standards don’t go far enough to require CFPs to avoid certain conflicts of interest, especially in the compensation area. They are also asking the board to require written disclosure of all conflicts (not just material conflicts) and require CFPs to obtain clients’ informed consent for conflicts.

The CFA is asking the CFP Board to ban certain compensation practices, including sales quotas for proprietary products; differential compensation; compensation based on retroactive, ratcheted payout grids; and up-front signing bonuses. 

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