SEC vs DOL

The Fiduciary Rule Lives On

The Department of Labor promulgated a “fiduciary rule” that would have required financial advisors to act in the best interests of their clients, rather than merely requiring them to provide “suitable” advice. Under pressure from some corners of the Wall Street universe, implementation of the rule’s key provisions was later delayed until July of 2019. In March of 2018, the Fifth Circuit Court of Appeals ruled in favor of trade groups who argued that the rule exceeded the agency’s statutory authority. Further legal wrangling will likely ensue.

Given those headwinds, there is no guarantee that Labor’s regulations will ever see the light of day. However, the Securities and Exchange Commission appears to have stepped into the gap, with the agency’s Commissioners recently voted four to one to propose a new fiduciary rule pursuant to their legal authority.

Good news for consumers, right?

Well, maybe.

In their article, “SEC Votes to Propose Stricter Broker Standards”, the Wall Street Journal reported on April 18, the SEC’s rule would likely be far less stringent than DOL’s.

“The SEC’s rule wouldn’t ban any single conflict of interest, such as sales contests that brokers conduct to juice sales of particular products, but would generally require brokers to disclose conflicts of interest and try to blunt their impact,” Dave Michaels, WSJ, wrote. “Brokers would generally be required to disclose conflicts of interest to clients such as bonuses they get for selling certain products or fees they earn for steering investors toward certain mutual funds or insurance products. Brokers also would have to either blunt the impact of the worst conflicts or eliminate them entirely.”

The rule in final form, if promulgated, will come after 90 days of public comments, so we can’t be sure of what it will contain, but it appears likely that it will lie somewhere between “suitability” and a true “fiduciary” standard. As the Wall Street Journal noted, even some of the Commissioners who voted for the plan criticized some elements of the rule as overly vague.

So where does this leave consumers?

The good news is that the word fiduciary is front and center. By inserting it relentlessly into the national dialogue, we hope that consumers and regulators will eventually recognize that a True Fiduciary® standard that puts the interests of clients first is the way to go.

The less-good news is that we still live in a world that is more or less buyer-beware. Even if the SEC’s final rule is substantially similar to their proposal, it will still leave a lot of wiggle room for advisors to operate outside of the best interests of their clients.

Whether an adequate and appropriate standard is ever codified, nothing prevents you from enforcing the True Fiduciary® Standard with your advisor. Don’t settle for suitability. Find transparency that puts you first.

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At PagnatoKarp, we go beyond wealth management to simplify and elevate your lifestyle so you have more time to spend on what matters to you most. Our dedicated team provides personalized, boutique services for investments, financial planning, tax, legal, private banking, family governance, concierge, and travel. With True Fiduciary® Standards, you receive transparent advice in your best interest, focused on asset protection, cost, and opportunities.

Your time is valuable. Please contact PagnatoKarp at 703-468-2700 or ppagnato@pagnatokarp.com to schedule a private, confidential meeting at your convenience.

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