Burr & Forman

05.19.2017   |   Blog Articles, Fiduciary Rule, Securities Litigation

Will The Fiduciary Rule Live on Even if it is Repealed?

The Department of Labor fiduciary rule was supposed to be implemented on April 10, 2017. That date was pushed back to June 9 so that it could be reassessed, and possibly modified or even repealed. The rule as it stands would require financial advisors to act in the best interests of their clients in retirement accounts. If the rule is repealed, what does that mean for the standard and the industry?

FINRA chairman John Brennan recently explained that even if the DOL fiduciary rule is repealed, “it has elevated and put into plain language the idea of providing investment advice that’s better for clients’ returns than for financial advisers’ revenue.” He further stated that “[w]hatever happens to DOL, it served its purpose by getting best-interest terminology into the industry.”

Even if it is repealed, the Dodd-Frank financial reform law gives the Securities Exchange Commission the authority to promulgate a uniform fiduciary standard for retail investment advice. Therefore, if the rule is repealed, it could live on in the SEC and FINRA.

Currently, brokers are governed by the suitability standard, which gives them latitude to sell high-fee investment products as long as they align with investors’ needs. Investment advisers are held to a best-interests requirement. A new standard would raise advice requirements for brokers. FINRA president and CEO Robert Cook said “[t]here should be a best-interest standard for brokers…Whether it looks exactly the same as [the standard for] advisers, I’m not sure about that. I’m not saying I’m against it. At this point, the SEC would be the one to take the lead on this. If they came out with a best-interest standard, we might need to look at our suitability.”

On the other hand, critics of the DOL rule argue that it is too burdensome and costly and “will price investors with modest assets out of the advice market.” Whereas “[s]upporters say it is necessary to protect workers and retirees from conflicted advice that leads to inappropriate high-fee investments that erode savings.”

Stay tuned as we will see how this all plays out…

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