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A universal fiduciary standard applying to both registered investment advisors and broker-dealers looked all but inevitable last year. But a series of setbacks has culminated in the delay of not only the SEC’s rule, but also an unpopular Labor Department rule, which would have exposed almost every advisor associated with a retirement plan to liability as a fiduciary.
Mixed Messages on the Fiduciary Standard
There’s so much confusion surrounding both proposed—or in the case of the SEC, to-be-proposed—rules that even strong proponents of the fiduciary standard are saying that it may be best for the SEC and the Department of Labor to take their time developing workable, complementary rules.
An unnamed SEC official has said the agency will again delay proposing a universal fiduciary standard rule, resetting its timetable to 2012 due to the demands of performing a cost-benefit analysis of the standard. This could be the first SEC confirmation of the proposed rule’s 2012 timetable, which was projected by FINRA Chairman and CEO Richard Ketchum.
On the other fiduciary front, the Labor Department announced two weeks ago that it would withdraw a proposed rule that would have expanded the definition of “fiduciary” to include anyone giving investment advice to retirement plans. The announcement came not long after the Labor Department insisted it would finalize the rule this year.
The Labor Department’s proposed rule was heavily opposed not only by industry groups representing advisors who would have been affected by the rule, but also consumer advocacy groups that favor a strong fiduciary standard.
The Future of the Fiduciary Standard
Although caution is warranted, we’re again left wondering whether the SEC will ever get to drafting a proposed rule or whether its repeated delays will only give Republicans enough time to halt the rulemaking process or repeal Dodd-Frank en masse.
The SEC’s incessant procrastination is nowhere to be seen at the Labor Department, which has shown its willingness to finalize its poorly conceived rule despite nearly unanimous opposition from both political parties and both sides of the industry divide.
We hope that, if the fiduciary standard is here to stay, at least the Labor Department and the SEC will use the next few months to formulate a unified, workable solution to the problems raised by both sets of proposed rules. But can such dramatically different approaches to rulemaking be reconciled?
Based on the SEC’s track record with the universal fiduciary standard, it’s easy to be skeptical about their chances of getting it done.
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