More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
The Department of Labor announced Tuesday that it will delay releasing its controversial fiduciary redraft until at least January 2015 from the originally slated August release date.
DOL made the announcement that its proposed rulemaking under its Conflict of Interest Rule would be delayed under a change to its regulatory agenda.
Labor Secretary Thomas Perez told a Senate Appropriations subcommittee in mid-April that the redrafting of the fiduciary proposal “has been slowed down at my direction significantly because we wanted to take a step back [to] listen and learn from everyone.”
Perez noted, “We’ve been engaged in a significant amount of outreach, and I’ve met with a number of senators and congressmen on both sides of the aisle, and we’re going to continue to do that.”
Phyllis Borzi, assistant secretary of labor for DOL's Employee Benefits Security Administration, said in mid-March that release of a fiduciary redraft could come sooner or later than the arbitrary August deadline that was in the original regulatory agenda.
Ken Bentsen, president and CEO of the Securities Industry and Financial Markets Association, said in reaction to the extended timeline: “From day one, this has been a troubled proposal by DOL that will harm the ability of everyday American investors and small business owners to save for retirement.”
While Bentsen said in the statement that the extended timeline “provides a temporary delay,” SIFMA believes that it is “the responsibility of the SEC to act,” to issue its own fiduciary rule under the authority provided to the agency by the Dodd-Frank Act, as “premature actions by the DOL, whether now or in January, could undermine the SEC’s work to improve upon the standard of conduct owed by broker-dealers and investment advisors to retail clients.”
Chris Paulitz, senior vice president of membership and marketing for the Financial Services Institute, said in reaction to the delay that FSI's "main goal is that they [DOL] get the rule right, not get it out fast."
FSI "remains eager to be helpful to the Department to ensure small investors can continue to have access to affordable, objective financial advice."
SEC Chairwoman Mary Jo White has said that the agency would make a threshold decision this year on whether to move forward with a fiduciary rulemaking. However, SEC Commissioner Daniel Gallagher said recently that a fiduciary rulemaking by the SEC would not “stave off” the planned upcoming release of a fiduciary redraft by DOL.
The rerelease of a DOL rule proposal to amend the definition of fiduciary under the Employee Retirement Income Security Act is “a very real issue, and we have to take it into account,” Gallagher said.
The SEC is “getting called out by all sectors” for moving slowly on a fiduciary rulemaking, Gallagher continued, “but it’s the best of what the SEC does: acting deliberately.”
Gallagher also said that the DOL is “dealing with different issues and a very different statutory construct” under ERISA, than the SEC is under the securities laws, and the agency’s authority under Section 913 of the Dodd-Frank Act.
The DOL gave the following description of its conflicts of interest rule:
"This rulemaking would reduce harmful conflicts of interest by amending the regulatory definition of the term 'fiduciary' set forth at 29 CFR 2510.3-21(c) to more broadly define as fiduciaries, employee benefits plans, and individual retirement accounts (IRAs) those persons who render investment advice to plans and IRAs for a fee within the meaning of section 3(21) of the Employee Retirement Income Security Act (ERISA) and section 4975(e)(3) of the Internal Revenue Code.
"The amendment would take into account current practices of investment advisors, and the expectations of plan officials and participants, and IRA owners who receive investment advice, as well as changes that have occurred in the investment marketplace, and in the ways advisors are compensated that frequently subject advisors to harmful conflicts of interest."