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DOL Fiduciary News: September 18, 2017

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Broker-dealers and RIAs at loggerheads over fiduciary rule delay  

InvestmentNews; Sep 15, 2017 @ 1:55 pm

Broker-dealers and registered investment advisers are very much at odds over any potential delay of the Department of Labor's fiduciary rule.

Broker-dealers in a full-throated roar are supporting the Department of Labor's proposed 18-month delay in putting into place its new fiduciary rule's second phase, according to the latest round of comment letters on the rule. The proposal would push back the original January 1, 2018, applicability date to July 1, 2019.

But at least one registered investment adviser believes that delaying the rule's full implementation could be harmful to investors. In its comment letter, signed by Christopher Jones, chief investment officer of Financial Engines Inc., the giant RIA with more than $150 billion in assets under management said it believed that extension of the transition period and delay of the date "would inject additional uncertainty into the market, which could result in the imposition of costs on the industry and investors."

Fiduciary rule prompts more firms to outsource portfolio design 

Financial Planning; September 15 2017, 5:03pm EDT

With only so many hours in the work day, would you rather spend time on crafting winning portfolios or building relationships with clients?

Many advisors might prefer to do both, but they increasingly need to outsource portfolio construction in favor of spending more time working on a client's holistic financial picture, according to Tom O'Shea, associate director of Boston-based consulting firm Cerulli Associates.

The Department of Labor's fiduciary rule is a "catalyst for long secular trends" away from the commission-based model of picking stocks and funds for clients, says O'Shea, who is the lead author of a new report looking at how firms have been adapting their approach to portfolio construction.

Home offices, Cerulli finds, are looking to centrally manage their advisors' portfolios or outsource them to a third party as an insulating force to protect their firms from legal and regulatory risks.

Fiduciary Rule Delay to Cost Investors $11 Billion: Economic Policy Institute 

ThinkAdvisor; September 15, 2017

Consumer groups have come out in full force against the Labor Department’s plan to delay implementation of the fiduciary rule and potentially water it down.

“‘Delay’ is just another word for ‘decimate,’" said Karen Friedman, executive vice president at the Pension Rights Center, in a statement from the Save Our Retirement Coalition. The statement was released today, marking the end of a 15-day comment period for the Labor Department’s latest proposal.

Heidi Shierholz, the policy director of the Economic Policy Institute, another coalition member, said the delay of the fiduciary plan, from Jan.1, 2018 to July 1, 2019, “literally takes billions of dollars out of retirement savers' pockets.”

More specifically, the delay from January 1, 2018 until July 1, 2019, will cost consumers billion $10.9 billion over 30 years, according to an extensive comment letter that EPI filed with Labor. (That figure is the midpoint of projected losses between $5.5 billion and $16.3 billion.)

Largest US financial firms decline to publicly criticize arbitration rule; Friday, September 15, 2017 11:51 AM ET

Most large U.S. financial firms told Sen. Elizabeth Warren, D-Mass., that they use binding arbitration clauses in their financial products, but declined to say whether they would support Congressional efforts to stop a consumer watchdog's rule that would limit the use of those clauses.

In letters released by Warren's office Sept. 12, corporate representatives from 16 of the largest financial institutions attempted to explain their use of arbitration clauses and whether their companies oppose the Consumer Financial Protection Bureau's recently-finalized rule that would allow consumers to file class action lawsuits.

A majority of the large institutions admitted to using arbitration clauses; 11 said they used arbitration clauses in at least some of their products. Three companies failed to clearly outline their terms of use and two — Capital One Financial Corp. and TD Group US Holdings LLC — said they didn't use arbitration clauses in any of their products.

Only one company, American Express Co. explicitly articulated support for a Republican effort to repeal the CFPB's rule through the Congressional Review Act, which already has support from the House of Representatives and the president. Eight companies expressed support for allowing companies to use arbitration agreements in their products: Barclays US LLC, BB&T Corp., Citigroup Inc., Citizens Financial Group Inc., JPMorgan Chase & Co., SunTrust Banks Inc., U.S. Bancorp, and Wells Fargo & Co.

Trend toward centralized investment advice will continue: Cerulli 

Retirement Income Journal; Thu, Sep 14, 2017

To reduce dispersion of client returns and mitigate legal risks, more wirehouses and brokerages have begun encouraging their advisors to outsource portfolio construction and become relationship-builders, according to new research from Cerulli Associates, the global consulting firm.

“Going forward, if you want to be an advisor, you have to place your value-add on goal-based planning, and other higher-order planning activities. If your value prop is creating asset allocation models, then you have to rethink it,” Tom O’Shea, associate director at Cerulli, told RIJ in an interview.

The trend comes mainly from the Obama Labor Department’s fiduciary rule, which will have a big effect on brokerages regardless of how much the Trump administration weakens it, O’Shea said: “The people we talk to use a lot of metaphors like, ‘The horse is out of the barn’ and ‘the toothpaste is out of the tube.”

Wirehouses and brokers have seen the dispersion of returns created by independent-minded “reps-as-portfolio-managers” using discretionary managed accounts, and see legal or regulatory liability there. That risk exposure would largely vanish if a single, centralized investment team laid down investment guidelines. 

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