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DOL Fiduciary News: December 4, 2017

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Despite Delays, DOL Rule Becoming Law of the Land

Financial Advisor; December 1, 2017

Despite a year-and-a-half delay and an imminent legal decision in a blockbuster industry lawsuit to force the Department of Labor to vacate its fiduciary regulation, the rule is fast becoming standard operating procedure at most firms, says Marcia Wagner, principal of the national law firm Wagner Law Group.

“We will definitely see some changes and development in the law over the next 18 months, but the basic takeaway is that this law was established July 9 and I don’t think the courts would be able to undo it even if they wanted to,” Wagner told Financial Advisor Magazine. “The vast majority of firms have really embraced fiduciary standards for retirement accounts and IRAs.”

In contrast, the 22 plaintiffs who are suing the DOL to overturn the fiduciary rule—including powerhouse associations like the American Council of Life Insurers, the U.S. Chamber of Commerce, the Financial Services Institute, the Financial Services Roundtable and SIFMA—are anxiously awaiting a decision from the Fifth Circuit Court of Appeals. Several sources said the decision is expected any day.

Risks Lurk in DOL Rule Exemption for ‘Clean Shares’ 

ThinkAdvisor; December 1, 2017

Industry officials see the Labor Department moving forward in proposing a new, streamlined exemption for “clean shares” as part of its revised fiduciary rule, but warn that risks lie ahead in how Labor crafts such an exemption.

If Labor issues “too broad” a definition of clean shares, “the rule will bless conflicted payments in cases where they might be a problem,” said Aron Szapiro, director of policy research at Morningstar, during a Friday panel discussion at the Consumer Federation of America’s financial services conference in Washington. If the definition is “too narrow,” the rule could “stifle innovation.”

As it stands now, Szapiro added, the kind of innovation that DOL hoped would occur in promulgating its fiduciary rule “is flourishing.”

Paul Roye, senior counsel for Capital Research and Management Company — which is the investment advisor for the American Funds — who spoke on the panel with Szapiro, opined that Labor “is going to fashion an exemption around clean shares” in any revised rule.

Fiduciary Focus Spurs Advisers to Home In on Lowest-Cost ETFs, Survey Finds

The Wall Street Journal; Dec. 1, 2017 8:00 a.m. ET

Financial advisers are putting a greater emphasis on finding the exchange-traded funds with the lowest expense ratios for clients’ portfolios, a byproduct of increased awareness about their fiduciary obligations.

“Expense ratio reigns supreme,” concludes the fifth-annual survey by, a San Francisco-based ETF researcher, and Brown Brothers Harriman & Co., a New York-based firm that handles ETF custody and administration. The survey is based on the responses of 360 professional money managers, which were primarily financial advisers, including registered investment advisers and brokers at large wirehouses and regional broker-dealer firms.

Asked to rate the importance of list of factors in selecting an ETF, 64% of respondents rated expense ratios as “very important” and 29% rated them as “somewhat important,” putting them ahead of an ETF’s index methodology, historical performance and tax efficiency, among other factors.

In A Twist, RIA Firms Form Own B-Ds

Financial Advisor; December 1, 2017

Not everyone is throwing in the towel in running a broker-dealer.

As the number of broker-dealers continues to dwindle in the face of compliance and cost pressures, some RIA firms are forming their own B-Ds to handle legacy securities businesses and facilitate the use of alternative investments.

Compliance consultants say they’ve seen an uptick in interest from RIA firms that want to run their own B-Ds.

“Most are doing it [because] they struggle with the due diligence process at the B-D they’re with,” said Christopher Winn, founder of AdvisorAssist, a compliance consultant.

Ryan Shanks, chief executive of Finetooth Consulting, has had one RIA firm create a B-D, and he has another one in the process.

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