The Department of Labor’s plan to change the definition of fiduciary on retirement accounts is a “fractured approach” that will “confuse retirement investors, financial institutions and advisors;” plus, it will apply a “panoply of regulatory regimes” to different accounts served by the same advisor for a single client, the Financial Industry Regulatory Authority told DOL on Friday.
With the July 21 deadline for comments on DOL’s fiduciary redraft approaching, FINRA weighed in, stating that the confusion created by DOL’s fiduciary redraft could be easily ameliorated if “a harmonized best interest standard” applied to all accounts, retirement and non-retirement, investment and advisory and broker-dealer.
“The customer and financial advisor could then properly consider the investment portfolio as a whole, subject to a single, harmonized standard,” FINRA said in its 21-page comment letter.
FINRA also states that the federal securities laws should “serve as the foundation of the best interest standard that will apply to broker-dealers,” adding that DOL’s redraft does not meet “some of the minimum criteria for such a standard.”
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Imposing a best interest standard “requires rulemaking beyond what is presently in place for broker-dealers,” FINRA explains, noting that the self-regulatory organization “stands ready” to work with the Department and the Securities and Exchange Commission to develop “this additional rulemaking.”
The redraft’s preamble makes “passing reference to the comprehensive, well-established system of regulation that the federal securities laws impose upon broker-dealers” under the SEC and FINRA, the letter states.
Furthermore, DOL’s plan “does not incorporate existing regulation and introduces new concepts that are fraught with ambiguity,” FINRA states. It also says the DOL should “consider that these ambiguities will frustrate the ability of a financial institution and advisors to comply with the proposal,” and “will necessitate interpretive guidance on a wide array of issues, which the preamble does not provide.”
In some ways the DOL plan “even conflicts with existing FINRA rules and securities market trading practices,” FINRA states.