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February 27, 2018 at 03:11 PM
The Consumer Federation of America urged Labor Secretary Alexander Acosta on Tuesday to crack down on violations of the Impartial Conduct Standards set out in Labor’s fiduciary rule, as infractions are occurring.
Case in point: the recent charge levied by the Massachusetts Securities Division against Scottrade for alleged “dishonest and unethical activity and failure to supervise” for conducting sales contests that violated Labor’s impartial conduct standards.
The Consumer Federation also told Securities and Exchange Commission Chairman Jay Clayton the same day that Massachusetts’ action “provides a timely reminder” of the need to include in its anticipated fiduciary rule “tight restrictions on practices that encourage and reward advice that is not in customers’ best interests.”
Barbara Roper, the consumer group’s director of investor protection, urged Acosta in a Tuesday letter to start using Labor’s “own enforcement authority against firms, such as Scottrade, that clearly fail to work ‘diligently and in good faith to comply’” with the fiduciary rule’s impartial conduct standards, which took effect on June 9, 2017.
Acosta told a House panel last November that the best-interest standard (also known as the impartial conduct standards) under the Labor Department’s fiduciary rule is “in effect,” and that as long as firms are “proceeding to implement” those standards, Labor is in a “compliance assistance” mode.
However, if firms are committing “willful violations,” Labor will use its enforcement authority, Acosta told the lawmakers.
The Consumer Federation, wrote Roper along with the federation’s financial services counsel Micah Hauptman, “supported the Department’s decision to refrain from bringing enforcement actions in cases of inadvertent rule violations during an initial transition period, but only if this policy of forbearance is truly limited to instances where firms are working ‘diligently and in good faith to comply.’”
Since the announcement of Labor’s “non-enforcement policy” under the fiduciary rule’s transition period, which runs until July 1, 2019, Roper and Hauptman have informed Labor twice of “potential violations” of the impartial conduct standards, they said.
On Oct. 3, 2017, the federation asked Labor to investigate allegations that firms were inappropriately shifting retirement savers into fee accounts “without first ensuring the shift was on terms that were in the best interest of the investor.”
Later that month, the federation presented “evidence from an industry survey suggesting that many firms had failed to change either their product mix or compensation practices to comply with the rule,” Roper and Hauptman wrote.
