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DOL Fiduciary News: September 12, 2017

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States to Trump: Leave Retirement Rule Intact or We’ll Act

The Wall Street Journal; Sept. 12, 2017 5:30 a.m. ET

The controversy over a rule restricting conflicted retirement advice is shifting to states, which are moving to bolster investor protections out of concern the Trump administration will weaken the federal provision.

In recent months, the governors of Nevada and Connecticut signed bills to expand or amplify “fiduciary” requirements for brokers. Legislators in New York, New Jersey and Massachusetts have introduced similar bills. And several other states, including California, have indicated interest in exploring such requirements.

Unveiled last year, the Labor Department’s fiduciary rule requires brokers to act in the best interests of retirement savers rather than sell products that are merely suitable and potentially more lucrative for the brokers. Financial-industry leaders have fought against the Obama-era regulation, saying it would limit investment options, elevate costs and potentially cut off low-balance customers from some forms of professional advice.

Trump administration signals plans to defang retirement rule

Reuters; September 11, 2017 / 4:35 PM

NEW YORK (Reuters) -- The U.S. government will likely water down a key part of a landmark retirement rule, lawyers for the Department of Labor said, signaling that the government will offer an out for brokerages that would have been subject to class action lawsuits.

Thrivent Financial, a Minneapolis-based asset manager, has asked a federal court in Minnesota to block an anti-arbitration provision in the government’s fiduciary rule. The provision allows unhappy clients to sue their brokers, a first in an industry which has always required customer disputes be arbitrated.

In a brief filed last week, Labor Department lawyers wrote that their agency’s actions on the fiduciary rule “in the near future are likely to moot this case.”

“The department has stated its agreement with the plaintiff that the challenged provision is improper as applied to arbitration agreements,” the Labor Department said in its filing. 

Fiduciary rule to make FINRA arbitration more difficult for advisors

Financial Planning; September 11 2017, 12:33pm EDT

FINRA arbitration under the fiduciary rule may tilt in clients’ favor more often, grow even more difficult for advisors and cut into firms’ longtime high success rate, according to one expert who has served as an arbitrator since 1999.

Arbitration, however, has not been in the spotlight as prominently as a class action provision in the rule's best interest contract exemption. Industry trade groups have been vigorously lobbying to remove the unimplemented provision, which fiduciary advocates say is an essential enforcement mechanism.

Yet while the future of the BIC exemption remains uncertain, the regulation's impartial conduct standards have gone already into effect. And the implemented provisions will roil arbitration regardless of the Trump administration’s actions on the BIC, says attorney and arbitrator Barry Temkin.

DOL fiduciary rule has enforcement gaps — and they could widen

InvestmentNews; Sept 11, 2017 @ 2:42 pm

The Department of Labor's fiduciary rule, as it's currently written, has some enforcement gaps. And they could widen, especially for annuity products, depending on how the Trump administration's review of the rule shakes out.

The primary enforcement mechanism of the Obama-era regulation, which raises investment advice standards in retirement accounts, is a "best-interest contract" between an investor and financial institution such as a broker-dealer.

Beginning in January, firms that wish to use certain compensation arrangements, like commissions, must enter into a contract with an IRA investor affirming the broker's fiduciary relationship to the investor and that the investor is receiving advice that's in his/her best interest. The investor, in turn, will have a way to bring suit against the institution for breach of contract.

Target-Date Funds under Renewed Scrutiny

Financial Advisor; September 11, 2017

The Department of Labor fiduciary rule is causing retirement plan advisors to take a closer look at target-date funds, says Brendan McCarthy, a managing director at Nuveen.

“There is a heightened awareness of fiduciary duties and of the possibility of lawsuits for excessive fees that is causing plan advisors to take a new look at target-date funds used in retirement plans,” says McCarthy, who is Nuveen’s Defined Contribution Investment Only head of national sales.

Target-date funds included in retirement plans 10 years ago may no longer be appropriate because of the new regulations and changes in the industry, he says.

“Retirement plan sponsors are asking advisors to re-evaluate their target-date fund selections,” he says. Nuveen is the sixth-largest manager of target-date fund assets in the industry and the third-largest in target date fund net flows as of July 31, according to Morningstar. 

Retirement Planning Education Program Keeps Planners on Right Side of New Rules

CENTENNIAL, CO -- (Marketwired -- September 11, 2017) -- The College for Financial Planning's (CFFP) newly revised Chartered Retirement Plans Specialist℠ or CRPS® professional designation program will help provide clarity for those confused by the on-again, off-again new fiduciary standards under review by the U.S. Department of Labor (DOL).

The DOL's fiduciary standard is the industry's highest bar for responsibility and standardizes requirements within the industry. While some of the new rules have been put on hold, Jim Pasztor, vice president of academic affairs at CFFP, said, "For all intents and purposes, being held to the fiduciary standard when providing advice to retirement investors became the law on June 9, 2017."

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