The Department of Labor (DOL) and Securities and Exchange Commission (SEC)
announced earlier this year that they are collaborating in creating a
standardized investment advice rule that would replace Labor’s fiduciary
rule. Now, industry experts are betting the SEC can accomplish the approval
of a new fiduciary rule before the DOL's delay expires.
The Securities Industry and Financial Markets Association (SIFMA), a financial
industry trade group, said in an interview in December that they believe
the SEC will deliver a new fiduciary standard sometime over the next 18 months.
While the DOL’s version is shelved, for now, Ken Bentsen, CEO of
SIFMA, told a press conference that his group is optimistic that Labor
and the SEC can work together in developing an industry-standard fiduciary rule.
“I think they can get it down if they want to,” Bentsen said.
“I think they’re committed to doing this. That is different
than in the prior administration where the commission felt they had to
Most industry analysts have said they prefer one standardized rule across
all financial sectors, and the SEC is looking to deliver on that concept.
“[T]he conversation between the commission and the Department of
Labor has been substantive, that they recognize that there has to be much
more interaction, interoperability among any standards and that multiple
standards unnecessarily is not a good outcome,” Bentsen added.
Another regulatory agency has also pledged their support in developing
a universal rule. Robert Colby, FINRA’s chief legal officer, addressed
a panel at the National Society of Compliance Professionals on October
16, saying that the agency is ready to help in crafting a rule that would
standardize compliance across all financial markets.
According to Colby, FINRA believes that the SEC is the right agency to
create a market standard saying “You don’t get a lot of second
opportunities in Washington, but the SEC has a second chance to come up
with its own rule and work with the DOL to get to a coordinated standard,”
The timeframe with which the SEC has to work within may get extended, as
the agency awaits an appellate court decision on whether Labor overstepped
its authority in creating a fiduciary standard. SIFMA is one of several
plaintiffs involved in the original lawsuit that failed in U.S. District
Court in Texas, which names the SEC as the proper oversight agency to
create a fiduciary standard.
“We’re eager to hear what appellate court has to say. We believe
strongly in our case — the government overreached in a number of
areas,” said Bentsen.
Bentsen said he hoped the appellate decision would come soon so that the
SEC is clear on what direction they should take when crafting the replacement
rule. “Whether we prevail in our case — which we hope we do
— or not, at the end of the day the course of action is the same,
where SEC is to take the lead and develop a best interest standard.
The way it stands now, DOL was the only federal agency to release a fiduciary
rule, with a number of state rules in place that run contradictory in
some facets. However, many inside the government believe there is a way
to overcome conflicting federal and state rules.
Susan Axelrod, executive vice president of Regulatory Operations at FINRA,
said that the DOL’s rule and other fiduciary standards are not unlike
other areas where you may see “disparate regulatory requirements."
"It’s critically important for the regulators to continue to
coordinate and not set different standards because it becomes challenging
for the industry to comply.”
The 18 months that SIFMA envisions passing before a new rule is approved,
corresponds to the amount of time that certain parts of the DOL rule is
delayed. The Department of Labor, under pressure from lawmakers and the
Trump administration, delayed compliance deadlines for some elements of
the fiduciary rule until July 1, 2019.
The fiduciary rule’s “impartial conduct standards” took
effect June 9 and are still in force. The standards require financial
services firms to provide accurate and honest advice in their client’s
best interest, avoid misleading statements, and charge reasonable compensation
for their help.
DOL officials have already confirmed that they could further delay the
rule if needed for the SEC to develop a new standardized rule. Until then,
it is essential for financial professionals to adhere to current regulatory
standards when conducting business.