Close Close

Regulation and Compliance > Federal Regulation > DOL

FINRA’s Ketchum Praises Final DOL Fiduciary Rule—Sort Of

Your article was successfully shared with the contacts you provided.

The Department of Labor’s final rule to amend the definition of fiduciary on retirement advice is “much better” than the previous proposal, but additional guidance is needed as to the “differential compensation” allowed for advisors under the rule and how such compensation “will work in reality,” Richard Ketchum, CEO of the Financial Industry Regulatory Authority, said Friday.

In remarks at an event held at the Brookings Institution in Washington, Ketchum, who has been a critic of DOL’s rulemaking, said that he was glad to see the “great clarity” DOL provided in its final rule regarding “third-party payments and proprietary products,” as well as the fact that the rule eliminates the “black list of products” eligible under the best interest contract exemption (BICE).

It “still could be valuable in having greater guidance with respect to how ‘neutral’ factors that allow for some differential in compensation with regard to advisor compensation actually should work in reality, and I’m hopeful that interacting with the firms [DOL] will be able to provide” that, Ketchum continued .

He added: “I think DOL has taken major strides in getting at the important step of managing conflicts in respect to best interest without driving everything into either self-driven accounts or fee-only. Whether they’ve [DOL] done enough, we’ll see.”

While Ketchum expressed his hope that the Securities and Exchange Commission could deliver “on a consistent” fiduciary standard proposal this year, he told reporters after his remarks that SEC Chairwoman Mary Jo White’s public comments about such a rule’s complexity “underlies the challenges” the SEC is faced with in the last year of the Obama Administration.

“I think she’s [White] been pretty candid that it’s going to be a challenge.”

In addressing advisors’ and brokers’ potential conflicts of interest, Ketchum noted that rules “alone cannot address the very real challenges that financial firms have in ensuring that ‘good people’ do not take actions that harm their clients and expose their firms.”

He said that after his nearly 40 years in the securities industry, “I can say unequivocally that firm culture has a profound influence on how a securities firm conducts its business. And I’ve seen over the years how a culture that doesn’t value ethical behavior leads to failures for the firm and significant harm to investors.”

He noted industry expert estimates that fines and litigation costs to firms, or their parent companies, related to cultural failures have totaled more than $300 billion since 2010.

“It’s important that the securities industry embrace a culture that puts investors first. A culture that consistently places ethical considerations and client interests at the center of business decisions helps protect investors and the integrity of the markets,” Ketchum said. “FINRA has been focused on firm culture, conflicts of interest and professional ethics for some time now, and we think firms should also be paying keen attention to these related areas.”

Conflicts of interest are a top exam priority for FINRA this year. FINRA expects to complete this year its targeted exams of brokers’ incentive structures and conflicts of interest in connection with firms’ retail brokerage business.

Ketchum also said that he still hoped to turn over his CEO reins sometime this summer.

– Related on ThinKAdvisor:


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.