From the July 2017 issue of Investment Advisor • Subscribe!

Washington Abuzz With New CFP Board Standards, Treasury Reg Reform Moves

Industry trade groups also descend on the nation's capital, while Financial Choice Act passes the House but is likely DOA in Senate

Lobbyists descended on Washington in June to hold annual lobbying days. Lobbyists descended on Washington in June to hold annual lobbying days.

Recent developments in Washington that should grab advisors’ attention include the Treasury department's first report on regulatory reform, the CFP Board's request for public comment on its revised Standards of Professional Conduct that include “strengthened” fiduciary standards, as well as the House of Representative's passage of the Financial Choice Act to derail Dodd-Frank and the Department of Labor's fiduciary rule.

Industry trade groups such as the Investment Adviser Association, the Financial Services Institute and the Financial Planning Association also recently descended on Washington to hold their annual lobbying days.

Top of mind for the FPA was educating elected officials on the financial planning profession and “the role FPA plays in giving the financial planning community, including CFP practitioners, a professional home,” Shannon Pike, 2017 FPA president, told IA. FPA members also advocated for a fiduciary standard, including Labor's fiduciary rule, and urged lawmakers to oppose any bills to thwart the rule, he said.

(Related: CFP Board Seeks to Impose 'Strengthened' Fiduciary Standard on All Advice)

House Republicans introduced legislation on June 8 to overturn Labor's fiduciary rule, a day before its effective date. Rep. Phil Roe, R-Tenn., a member of the House Committee on Education and the Workforce, and Rep. Peter Roskam, R-Ill., chairman of the Ways and Means Subcommittee on Tax Policy, introduced the Affordable Retirement Advice for Savers Act, H.R. 2823.

In introducing this bill, the lawmakers said it would “protect access to affordable retirement advice by overturning the Obama administration's flawed fiduciary rule while ensuring retirement advisors serve the best interests of their clients.”

The same day, Sen. Johnny Isakson, R-Ga., reintroduced companion legislation, the Affordable Retirement Advice Protection Act, S. 1321, which he argued would “preserve access to quality financial planning and ensure that retirement advisors serve the best interests of low- and middle-income Americans.”

In addition, the bill would amend the Employee Retirement Income Security Act “to raise investment advice standards for the retirement industry and strengthen protections for those saving for retirement.”

Also in early June, Labor released a request for information seeking public input on potential further changes to its fiduciary rule. The RFI, posted on the Office of Management and Budget's website, was still being reviewed by OMB as of press time.

Jeff Brown, senior vice president and head of Charles Schwab's Office of Legislative and Regulatory Affairs, told IA during IAA's annual lobbying day in Washington that Schwab has “weighed in on the [fiduciary] rule for seven years; we’ll dive back in” and provide comments on the current RFI, “and we will be an advocate of our clients’ position.”

Change could be made “to improve” the rule around the Best Interest Contract Exemption, where “the disclosures are over-burdensome” and require “massive amounts of information to be put on [advisors’] websites,” Brown explained. The rule's “creation of the private right of action and the trial bar” as an enforcement mechanism “will really be a problem. … That is not an appropriate enforcement mechanism.”

Financial Choice Act

After nearly four hours of debate on June 8, the House passed the Financial Choice Act, legislation sponsored by House Financial Services Committee Chairman Rep. Jeb Hensarling, R-Texas, designed to replace the Dodd-Frank Act, derail Labor's fiduciary rule and gut the Consumer Financial Protection Bureau.

Democrats offered no amendments to the bill, which passed by a 233-186 vote, and noted during floor debate that the Choice Act is likely dead on arrival in the Senate.

Treasury Report on Reg Reform

Treasury's first report on regulatory reform, released in early June, recommends that Congress reduce fragmentation, overlap and duplication in federal regulation by consolidating regulators with “similar missions” and more clearly defining their regulatory mandates.

The report also argues that Dodd-Frank has “increased the burden of regulatory compliance without adequate cost-benefit analysis,” and that Dodd-Frank has “prolonged the moral hazard arising from regulations that could lead to taxpayer-funded bailouts.”

Increased accountability for all regulators should be achieved through “oversight by an appointed board or commission, or in the case of a director-led agency, appropriate control and oversight by the executive branch, including the right of removal at will by the president,” the report said.

The CFPB, for example, is a director-led agency, and Republicans have long been pushing to reduce the power of its director.

Sen. Elizabeth Warren, D-Mass., who helped set up the CFPB, chided the Treasury for recommending to weaken the agency.

“This report calls for radical changes that would make it easier for big banks to cheat their customers and spark another financial meltdown,” Warren said in a statement.

“It comes as no surprise that Donald Trump and Steven Mnuchin — two men who were deeply involved in companies that cheated thousands of customers — would want to gut the agency that's held cheaters accountable and returned more than $12 billion to consumers, but Democrats aren't buying the Trump-Mnuchin financial deregulation plan,” she added.

CFP Board Revised Conduct Standards

The draft of proposed changes to the CFP Board's Standards of Professional Conduct released in late June for a 60-day public comment period “strengthens” the fiduciary standards CFPs must adhere to, requiring CFPs to act as fiduciaries “at all times,” said Leo Rydzewski, CFP Board's general counsel.

During a call with IA, Rydzewski explained that the updated standards go beyond the fiduciary parameters when CFPs engage in financial planning and attaches fiduciary standards “to all financial advice.”

The revised standards also introduce “clearer definitions and guidance on key areas related to financial planning,” the Board said, adding that the standards are “broader and bolder than what CFP Board has previously proposed or implemented.”

The revamped standards also presents a “clearer description” of financial planning and when financial planning is required, incorporating a “new definition” of financial planning that is intended to be brief and comprehensive. Financial planning is defined as “a collaborative process that helps maximize a client's potential for meeting life goals through financial advice that integrates relevant elements of the client's personal and financial circumstances.”

Also included in the proposed standards is a revised process for addressing bankruptcies. The standards includes bankruptcies among the types of “adverse conduct to be handled through the disciplinary process,” thereby returning CFP Board to the process that was in place prior to 2012.

Blaine Aikin, executive chairman of fi360 who leads the CFP Board's board of directors, said that CFP Board hopes to finalize changes to the standards by year end. After CFP Board holds its November board meeting, a likely effective date would be announced, he said.

Michael Kitces, partner and director of wealth management at Pinnacle Advisory, told IA that while the CFP Board's effort to expand the scope of its fiduciary duty “is laudable, … as we’ve seen from the rollout of the Department of Labor's fiduciary duty, it's very expensive and time-intensive for much of the industry to put in place fiduciary safeguards and oversight.”

--- Read DOL Releases Fiduciary Rule Request for Information on ThinkAdvisor. 

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