LAS VEGAS— Even one of the key architects of the lawsuit that killed the Department of Labor’s fiduciary rule admits that its replacement isn’t perfect, but neither would a uniform fiduciary standard.
Financial Services Institute president and chief executive Dale Brown (pictured right), whose firm was a co-plaintiff on the lawsuit that ultimately struck down the Obama-era regulation, said Wednesday at the MarketCounsel Summit that the Securities and Exchange Commission (SEC)’s proposed Regulation Best Interest standard of conduct for broker-dealers was the most pragmatic option in a universe where a uniform fiduciary standard for RIAs and brokers is presently unrealistic.
‘The challenge is, where is that 55-year old pre-retiree with only $50,000 going to go to get the kind of help they need – not to get maximum investment returns on their $50,000, but who’s going to help them avoid making the mistakes that uninformed investors make?,’ said Brown, who was debating MarketCounsel president and chief executive officer Brian Hamburger (pictured left) about the SEC proposal.
Brokers are currently held to a suitability standard, which allows them to recommend products that are generally in line with their clients’ investing goals but may be subject to commission-based conflicts of interest. Regulation Best Interest requires brokers to mitigate or eliminate their conflicts of interest, but the proposal has been criticized as impotent relative to the DOL’s fiduciary rule, which required brokers managing retirement accounts to put their clients’ best interest first.
The DOL’s rule went into partial effect in June of 2017 and was overturned by the US Court of Appeals for the Fifth Circuit in March. The SEC unveiled its proposal a month later and is currently formulating a final version of the rule after a public comment period closed in August.
Brown and Hamburger (pictured above) both wrestled with the fact that the high financial barrier to accessing advice from an RIA complicates matters. A request for a show of hands from advisors who accepted $100,000 standalone accounts yielded only two takers.
‘I think that highlights the problem as to why there can’t just be one answer,’ Hamburger said. ‘And while I’m a strong advocate of the fiduciary standard for advisors, I’m also a strong advocate of having clients being dealt fairly.’
Defenders of Regulation Best Interest argue that the rule proposal is still a step up from the existing suitability standard and Brown said that the trend in the industry is towards a uniform fiduciary standard.
‘The question is how long is it going to take to get there?,’ Brown added. ‘The question is how fast do we slam the accelerator down to get there and who gets left behind?’
Don’t expect the current administration to put its foot on the gas for that type of fiduciary standard. The Department of Labor essentially waved the white flag on its rule earlier in 2018 when it declined to appeal the Fifth Circuit’s ruling, though the item has appeared on its regulatory agenda for 2019.
‘A true fiduciary standard [is] dead on arrival,’ said Phyllis Borzi, the former assistant secretary for employee benefits security at the Department of Labor under president Obama.