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SEC to Release Third-Party Advisor Exam Rule in Spring: TDAI’s Schweiss

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The Securities and Exchange Commission will release its proposed rule this spring requiring advisors to get a third-party exam, and the “litigation bar” is salivating over the upcoming release of the Department of Labor’s fiduciary rule, Skip Schweiss, managing director of advocacy at TD Ameritrade Institutional, said Friday.

Speaking during a town hall discussion on the biggest regulatory issues impacting advisors this year at TD Ameritrade’s NationalLINC conference in Orlando, Schweiss picked DOL’s rule to change the definition of fiduciary under the Employee Retirement Income Security Act, potential release of a uniform fiduciary rule for brokers and advisors by the SEC, and advisor exams as three of the top issues to watch this year.

“If I’m in the litigation bar, I’m salivating over” the upcoming release of DOL’s fiduciary rule, which will likely come out by April, Schweiss said. The rule is “a whole new source of litigation down the road.”

Schweiss counseled advisors in the room to talk to their “ERISA and securities law counsel now,” adding that it is “quite likely” they will have to have a best interest contract exemption (BICE) in place under the final rule.

In anticipation of DOL’s rule, Schweiss also told audience members to “Decide upon your business model: education or advice.”

When asked by an advisor if arbitration will come into play in enforcing the BICE, which would require an advisor/broker to have a signed agreement with a client before dispensing advice, Schweiss responded that while BICE “allows for litigation as a resolution mechanism,” arbitration could also be included in the final rule.

Schweiss also said that he doubts an SEC fiduciary proposal would come out of this year, adding that he believes “the clock will run out” on the release of the fiduciary plan under current SEC Chairwoman Mary Jo White.

One issue that is nearly impossible for the SEC to address in a uniform fiduciary rule is allowing proprietary product sales. “I believe Congress put the SEC in an impossible position here. How can you pass a fiduciary standard … that would still allow commissions and proprietary product sales? Schweiss asked rhetorically. “I sympathize with the SEC” on how to address this question, he said. “This is an impossible task.”

— Check out How to Boost IRA Rollovers as DOL Fiduciary Rule Looms and Competition Grows on ThinkAdvisor.