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

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.”