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DOL Fiduciary News: July 28, 2017

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Raymond James to reduce compensation ratio for some accounts in '18; Thursday, July 27, 2017 11:57 AM ET

Raymond James Financial Inc. detailed plans to lower its compensation ratio for some advisers in response to the implementation of the Department of Labor's Conflict of Interest Rule.

Beginning in the first quarter of 2018, Raymond James will reduce the compensation ratio within its private client group by 1%, Chairman and CEO Paul Reilly said during the company's third-quarter earnings conference call. The company is considering how best to transition to fee-based platforms from commission-based accounts to comply with the rule, which will require advisers to act in the best interest of their clients.

In January, Reilly said that a number of Raymond James' smaller accounts and advisers would consider dropping commission-based compensation on the assumption that the fee-based platforms could be easier to manage under the new rules.

The application of certain exemptions related to the fiduciary rule, such as the best-interest contract exemption, are set to take effect Jan. 1, 2018.

LPL CEO sees growth prospects in ‘post-DoL world’

Financial Planning; July 27 2017, 8:34pm EDT

Despite uncertainty surrounding the fiduciary rule, LPL Financial will emerge stronger in the coming months, according to CEO Dan Arnold. The nation’s largest independent broker dealer lost more than 200 advisers due to three major defections in the second quarter.

The DoL rule will lead to “more adviser movement and opportunities for industry consolidation,” Arnold said Thursday during a call after LPL reported its second-quarter earnings. “We have been winning business by moving on these trends.”

Client assets at LPL grew 11% year-over-year to $542 billion despite exits by three major offices of supervisory jurisdiction. The firm’s gross profits grew 13% year-over-year to $389 million, even with the net loss of 121 advisers this year.

Compliance Costs May Be Strangling BDs, Regulators Say

ThinkAdvisor; July 27, 2017

Top regulators at the Securities and Exchange Commission and Financial Industry Regulatory Authority said Thursday that they’re worried that the cost of compliance is contributing to the dwindling number of broker-dealers, and that tailored rules for such firms may be required.

During a Thursday panel discussion led by Pete Driscoll, head of the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations, at the joint SEC, FINRA Compliance Outreach Program for Broker-Dealers event held at SEC headquarters in Washington, SEC Commissioner Michael Piwowar and FINRA CEO Robert Cook conceded that regulators may need to consider tailored compliance measures for smaller BDs.

Driscoll noted that the number of broker-dealers has dropped from 4,600 five years ago to 4,000 today. He queried Piwowar and Cook on what they believe are the “main triggers” contributing to the decline.

Piwowar noted the “natural movement” of broker-dealers to the investment advisory model, adding that some of this was due in part to regulations like the Department of Labor’s fiduciary rule.

Has the Fiduciary Rule Lost Its Sting?

Retirement Income Journal; Thu, Jul 27, 2017

In what may turn out to be a Christmas-in-July victory for financial services companies, the Trump administration appears willing to take the stinger out of the Obama Department of Labor’s Fiduciary (or “conflict of interest”) Rule, which went live on June 9 but isn’t enforceable until at least next January 1.

In a joint filing in the U.S. Court of Appeals in Texas on July 3, the Trump Departments of Labor and Justice endorsed the whole Rule—except for a provision ensuring that IRA owners may join class-action suits against financial services companies when those companies are believed to have systematically violated the Rule’s requirement that they act in their clients’ “best interest.”

“The government is no longer defending the BIC Exemption’s condition restricting class-litigation waivers insofar as it applies to arbitration agreements,” government attorneys wrote. “DOL may not interpret its… exemption authority as conferring upon it the specific power to discriminate against arbitration by withholding the BIC Exemption unless fiduciaries consent to class litigation.”

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