The New Year — yes, I’m talking about 2016 already — will bring with it two certainties: A final fiduciary rule will be unveiled by the Department of Labor and new commissioners will be installed at the Securities and Exchange Commission.
With the August hearings regarding DOL’s redraft of its rule to amend the definition of fiduciary under the Employee Retirement Income Security Act behind us, fiduciary advocates are gearing up this month to once again put the “F” word center stage as they usher in what the Institute for the Fiduciary Standard dubs “Fiduciary September.”
From “the ‘Merrill Lynch Rule’ and Dodd-Frank to the DOL proposal and the SEC’s affirming that disclosing conflicts is fiduciary ‘loyalty,’ 2015 culminates a 15-year battle for the soul of fiduciary advice in federal regulation,” Knut Rostad, founder of the Institute, told me in a mid-August email from Oslo, Norway.
The third year of the Fiduciary September program, which will be formally announced Sept. 1, aims to highlight the importance of fiduciary principles in preserving investor trust and confidence in the capital markets, according to Rostad.
TD Ameritrade Institutional is the exclusive sponsor of this year’s Fiduciary September. Skip Schweiss, TDAI’s managing director of advisor advocacy and industry affairs, told me in an email message that this year’s event is “more important than ever,” as the industry braces for the pending DOL fiduciary rule, renamed the Conflicts of Interest rule. What’s more, he noted, more court cases are being brought in the retirement arena, “reinforcing fiduciary duties of care and ongoing diligence, especially as it relates to investment product selection and fees.”
Public remarks by SEC Chairwoman Mary Jo White throughout this year have continued to signal the agency is moving — albeit slowly — toward unveiling its own uniform fiduciary rule for brokers and advisors. Should such a rule come to pass (not likely this year), noted Schweiss, it “could really shake the world” of advisors and brokers.
Barbara Roper, director of investor protection for the Consumer Federation of America, voiced her doubts at the recent spate of DOL hearings that the SEC would actually pull it off. “If the SEC were eventually to get around to adopting a rule — something that is far from guaranteed; at CFA we’ve been waiting for a little over 15 years — it would by definition be limited to recommendations regarding securities,” not retirement accounts, Roper told the DOL officials.
Indeed, Former SEC Chairman Arthur Levitt agreed that the agency is having a tough time reaching a consensus on how to move forward with its own fiduciary rulemaking. He said in an Aug. 19 interview with the Investment Adviser Association to commemorate the 75th anniversary of the Investment Advisers Act, which occurred on Aug. 22, that because the SEC commissioners are so “divided philosophically” on whether and how to move ahead on a fiduciary rulemaking, the agency will be “locked in a conflict on this issue for a long, long time.” The solution: “We should try to move ahead on the standard put forth by the Department of Labor,” Levitt said. “Is [the DOL proposal] perfect in terms of wording and content? Probably not. But I don’t know that there’s any rule that is ever perfect or that never has unintended consequences.”
Added Levitt: “We have long passed the time that we can afford to have side by side, advisors with one set of responsibilities and brokers with a much easier set of responsibilities and standards.”
David Tittsworth, the former president and CEO of the Investment Adviser Association who’s now with the law firm Ropes & Gray in Washington, said that while White has maintained in her public remarks that a fiduciary rulemaking under Section 913 of Dodd-Frank is a “high priority” for her, it looks as though other rulemakings from the Division of Investment Management are taking precedence. Those rules include the agency asking for information from advisors on their Forms ADV as well as anticipated proposals on liquidity and derivatives management by mutual funds and ETFs.