3 Possible DOL Reforms That Could Help Advisors

Equity analysts with Keefe, Bruyette & Woods sounded very skeptical of financial deregulation during a recent podcast, asking if such reforms are “a head fake.”

Their pessimism stems from the fact that Republicans have 52 seats in the Senate and need 60 to make the changes that some voters and politicians want to see in the Dodd-Frank Act, for instance.

This means Republicans could turn to “reconciliation” and tweak Dodd-Frank or leave it in place but rewrite some of its rules, according to Frederick Cannon, a chartered financial analyst.

On the Department of Labor’s new fiduciary rule, Cannon and his colleagues at KBW — Brian Kleinhanzl and Brian Gardner — see the following three reforms as possible.

• (1) An expansion of some investment choices allowed under the Best Interest Contract Exemption;
• (2) A relaxation of some reporting and paperwork requirements of the new fiduciary standard;
• (3) A close review of the rule’s class action provisions, including a move that might limit opportunities for investors to use class action lawsuits when suing financial advisors.

Other Reforms

As for changes to Dodd-Frank’s Volcker Rule regarding speculative investments, the KBW analysts say a new vice chairman for supervision could give banks “regulatory relief” through more lenient enforcement.

Smaller banks, for example, that do not have proprietary trading operations despise the rule’s paperwork requirements, since they have to demonstrate “that they comply with a rule that prohibits activities in which they never engaged.”

Cannon says the smaller banks should “eventually see some relief from the Volcker Rule’s compliance regime.”

In terms of a possible easing of Basel capital requirements, which would help the big banks, they are somewhat upbeat.

“We still believe a possible easing of regulations will happen, and we remain focused on changes that can occur outside of Congress,” according to Cannon, though he says the timetable for such reforms is 2018.