March 2014 may will be remembered in the East for the persistence of Old Man Winter. In investment advice it may be remembered as a tipping point of clarity on future fiduciary rulemaking at the Department of Labor (DOL) and the Securities and Exchange Commission (SEC).
The DOL displayed a new energy on rulemaking, which comes directly after the new DOL Secretary, Thomas Perez, met with key members of Congress over the past several months. This is an important development. Meanwhile, the SEC displayed a new caution, limiting itself to merely deciding it will decide whether to proceed. Some recent indications suggest the SEC may pass. The SEC passing on its fiduciary rulemaking, at least for now, may be good for investors.
By passing, the agency could stall an otherwise clear march, some 25 years in the making, of looser and looser regulations, de facto letting brokerage sales appear as fiduciary advice, while clearly not being fiduciary advice.
How did this occur? Until recently, securities “sales” and “advice” were generally separated in federal law. This was a central purpose of the Advisers Act of 1940, where fiduciary principles were clearly reflected in its legislative background. Over time this separation steadily blurred.
A broker today is permitted to suggest he’s an investment advisor, while not necessarily being required (in brokerage accounts) to: put clients first, disclose his duties to his BD, and disclose conflicts or most expenses and fees that clients pay.