More On Legal & Compliancefrom The Advisor's Professional Library
- Where Are We Headed? The ultimate compliance goal is to help ensure that everyone associated with an advisory firm acts ethically at all times. Advisors and RIAs should do the right thing, even when regulators are not looking over their shoulders.
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
A group of 10 Democratic senators are urging the Office of Management and Budget to carefully review the Department of Labor’s fiduciary reproposal to ensure that it doesn’t “directly conflict” with or “upend” the Securities and Exchange Commission’s work on its fiduciary rule.
In an Aug. 2 letter to Sylvia Matthews Burwell, OMB’s director, the senators--members of the Senate Banking and Health, Education, Labor and Pensions Committees--say that while they believe the SEC is moving forward in crafting a fiduciary rule that adheres to the congressional mandate set out in Section 913 of the Dodd-Frank Act, the DOL's efforts to redefine fiduciary under the Employee Retirement Income Security Act could work “at cross purposes” to the SEC’s rule.
“We believe that Congress clearly intended that a single [fiduciary] standard should apply to retail accounts, including retirement accounts, based on specific guidelines enumerated in Section 913,” the senators write.
While acknowledging that they don’t know what the DOL’s fiduciary reproposal will say, the senators cite DOL’s 2010 proposal that they say could have caused “all broker-dealers that service individual retirement accounts to be ERISA fiduciaries, which would have as a practical matter eliminated meaningful investment services for millions of IRA holders.”
Given OMB’s role in “coordinating and streamlining” agencies’ regulations, “we write to make you aware of the potential conflicts between these two regulations,” the senators write.
While DOL is required to send its rule proposals to OMB, the SEC is only required to send final rules to OMB.
Once DOL’s reproposed fiduciary rule is sent to OMB, which is expected in a matter of weeks, OMB then checks the proposal’s cost-benefit analysis and gives DOL feedback on the proposal, asking for changes if necessary. DOL must then make the changes and have them approved by OMB before putting the proposal out for public comment.
At a minimum, the senators say in their letter, DOL should not issue “final” fiduciary regulations until the “SEC has completed its work” on its fiduciary rule and that “any regulation the DOL ultimately may propose should be carefully crafted so that it does not upend the SEC’s work.”
But exactly when the SEC will issue a fiduciary rule proposal remains uncertain. SEC Chairwoman Mary Jo White told members of the Senate Banking Committee on July 30 that the agency was “focused” on completing a fiduciary duty rule proposal and that “it’s important for me to get to wherever we are going on that [rulemaking] as quickly as we can.”
However, while White said that the SEC is focused on the fiduciary rulemaking--which is not a mandatory rulemaking under Dodd-Frank--she noted the “full plate” of Dodd-Frank and the JOBS Act mandated rules that the agency must wade through and act on.
White also told the senators that she has met with senior officials at DOL regarding collaboration on both agencies' fiduciary rules and has directed SEC staff “to engage more actively” with DOL “to make sure they understand [the SEC’s] perspective” on its fiduciary rulemaking.