More On Legal & Compliancefrom The Advisor's Professional Library
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
Asking the Department of Labor (DOL) and Securities and Exchange Commission (SEC) to harmonize their fiduciary rules would create “significant challenges,” as the fiduciary standards under the Investment Advisers Act and the Employee Retirement Income Security Act (ERISA) are “quite different,” fi360 told members of Congress last week.
Blaine Aiken (left), fi360’s CEO, and Duane Thompson, senior policy analyst for fi360, told members of the House Financial Services Committee that if the SEC and DOL were to truly harmonize their rules, then the agencies would be left with one of two stark choices: require the SEC to impose a higher standard commensurate with ERISA standards, or require the DOL to violate ERISA requirements and thereby weaken the strong fiduciary protections now afforded to retirement plan participants.
Stated another way, Aiken and Thompson said, “it is our view that an act of Congress is necessary to clear up conflicting areas of the two laws and to provide both agencies with sufficient guidance to proceed if rules harmonization were the primary objective (which, by the way, we believe is neither wise nor consistent with longstanding public policies in this area of law).”
Even Phyllis Borzi, head of DOL's Employee Benefits Security Administration (EBSA) and chief architect of the fiduciary rule, has already said that harmonizing both rules isn't likely to happen. She said in a May interview with Investment Advisor that although there is a “primary commonality” between the SEC’s Dodd-Frank project to put brokers under a fiduciary mandate and EBSA’s fiduciary project, which is “to be more clear as to who is a fiduciary under [DOL and SEC’s] respective statutes,” it’s impossible for the two to come out with one fiduciary standard as the statutes they adhere to are “so very different.”
She reiterated this in June at an industry conference by stating: “I will not promise anybody there will be a single fiduciary standard.” However, she added that compliance with EBSA’s fiduciary standard “won’t put you out of compliance with another [fiduciary] standard” such as the SEC’s. Borzi couldn't say, however, when a reproposal of the DOL's fiduciary rule would occur.
When asked by AdvisorOne on Monday whether the DOL would issue a fiduciary reproposal by year-end, DOL spokesman Jason Surbey said that Borzi maintains the department "is going to take the time to draft a proposed rule that provides robust protections to the millions of participants in 401(k)-type retirement plans and IRA investors nationwide, protections that are consistent with those already provided for by law."
Since the September 2011 announcement of the intent to repropose, the DOL "has drawn on the extensive comments received on the proposal, as well as on diverse data sources to develop a robust and extensive economic analysis and proposal and is making good progress in that endeavor," he said.
"While it is important to provide those protections as quickly as possible," he said, "the department recognizes the importance of this rulemaking and will take the time needed to get it right."
Fiduciary advocates said recently that a fiduciary rule from the SEC could take years to finalize.
Aiken and Thompson told lawmakers that the fiduciary standards under both laws are “historically quite different in their purpose and application, resulting in significant challenges when attempting to harmonize rules that cover retirement planning activities under each law.”
In practice, Aiken and Thompson wrote in their letter to lawmakers, it is not uncommon for a financial advisor to be asked to review a client’s household assets, such as a nonretirement brokerage account and a tax-deferred 401(k) account, for the purpose of assessing the client’s retirement goals.
“A review of these particular accounts would, of course, involve oversight in overlapping jurisdictions of federal securities and pension laws,” they wrote. “Advisors and compliance officers have, over time, become increasingly sensitive to the different application of fiduciary principles under each law, recognizing that the nonretirement brokerage account and the 401(k) account are subject to different rules.”