“A massive game of regulatory roulette.” That’s how Blaine Aikin, executive chairman of the fiduciary education, training and technology firm Fi360, describes the current state of play for advisors and broker-dealers as they navigate the unending uncertainty in the “fiduciary” standard realm.

In late April, I sat down with Aikin during Fi360’s annual conference in San Diego, after he told the crowd of attendees that the Securities and Exchange Commission’s recently released standard of conduct proposals for brokers and advisors faces an “arduous” path to completion. Plus, there’s the Department of Labor’s fiduciary rule that remains “unsettled,” state fiduciary actions, as well as looming questions about where the Financial Industry Regulatory Authority “fits in,” Aikin said. FINRA has been “lifting the suitability obligation in their own right, so what’s next? I would assume [FINRA has] been in conversations with the SEC” about its conduct standards proposal.

Overlaying SEC, DOL, FINRA and state fiduciary-related actions, Aikin continued, are the courts, which “can complicate anything that happens in any of those areas.”

Indeed, despite the U.S. Court of Appeals for the 5th Circuit ruling in mid-March to vacate Labor’s fiduciary rule, at press time in early May, the DOL announced that financial institutions should be allowed to continue to rely upon the temporary enforcement policy set out in its fiduciary rule. Of course, that is pending the department’s issuance of additional guidance, which Labor said was forthcoming “in the future.”

The 5th Circuit had yet to issue the mandate to vacate Labor’s fiduciary rule at press time. Meanwhile, AARP and state attorneys general from California, Oregon and New York filed motions on April 26 to intervene in the 5th Circuit ruling to vacate Labor’s fiduciary rule. The 5th Circuit was quick to deny AARP and the states’ request on May 2.

Labor had until April 30 to appeal the 5th Circuit’s decision and did not do so. DOL can still ask the Supreme Court to review the ruling, and it has 90 days from the 5th Circuit decision, which took place on March 15, to make that request.

“The prevailing thinking is that the Department [of Labor] will not do that,” said Fred Reish, partner in Drinker Biddle & Reath’s employee benefits and executive compensation practice group in Los Angeles.

AARP and the state AGs also can appeal the 5th Circuit’s decision to the Supreme Court, but at press time AARP declined to comment on whether it would do so. A spokesperson for California Attorney General Xavier Becerra’s office told me they are still “evaluating best next steps.” Aikin told conference goers that there are “serious problems” in the SEC’s Regulation Best Interest, or Reg BI, for brokers, and that it’s likely the rule “will never fully come to pass.” Fi360, Aikin said, foresees “a long and arduous path” for the SEC’s rule, which the regulatory agency approved on April 18 and is out for a 90-day comment period.

“When you look at the dynamics of the situation, there are obstacles to the [SEC] rule gaining consensus,” he told me in separate comments.

“The commissioners expressed significant reservations” about the proposal, he explained. And “there are avenues for people to challenge the rule [in the plan’s] economic analysis, how the rule is drafted and the elements of it, as well as the difficulty in navigating the different points of views at the Commission” regarding the proposed rule.

Changes at SEC The final SEC plan will have to move forward with two new commissioners, as Republican Commissioner Michael Piwowar announced in early May that he would resign his position on July 7.

Piwowar’s term is set to expire on June 5, but commissioners can stay on for 18 months after their term expires. Commissioner Kara Stein, a Democrat whose term expired last year, also is expected to leave the commission this year.

The “wide difference of views among the commissioners” when voting on April 18 to put the three-pronged proposal out for public comment “means that reaching a final rule is going to require a compromise,” former SEC Commissioner Luis Aguilar told me in mid-May.

“That need hasn’t changed with the departure of Commissioner Piwowar,” Aguilar said. “In fact, Chairman [Jay] Clayton actually may have an easier time reaching a compromise with just three other commissioners rather than four commissioners, as there is one less view to consider.” Ultimately, Aguilar added, “if everyone keeps the needs of investors foremost in mind, it remains possible for a principled and rational compromise to be reached that benefits investors.”

The SEC’s standard of conduct plan has three parts: (1) new and amended rules and forms to require RIAs and broker-dealers to provide a brief disclosure document to retail investors, including restricted use of titles by brokers, (2) Reg BI, to establish a standard of conduct for broker-dealers, and (3) an SEC interpretation of the standard of conduct for investment advisors.

The timeline for completion is 2020 to have a finalized and implemented SEC rule, says Aikin, “assuming no court challenges” and public comment.

In terms of the DOL fiduciary rule, Aikin said that he doesn’t see Labor “completely” walking away, and anticipates a “new round of rulemaking” to be aligned with the SEC’s rule. “But how would you align to an SEC rule that’s in limbo itself?” he wonders.

Breaking Down Reg BI Reish argues that the provisions of Reg BI are “so close to the DOL’s Best Interest Contract Exemption that broker-dealers should consider continuing their programs to comply with BICE.” It may not make sense “to go back to the ‘old’ ways, when the new ways — compliance with BICE — may come back into effect in 12 to 18 months under the SEC’s final guidance,” he said. RIAs, Reish continued, face a similar path, “except that they most likely satisfy the ‘old’ five-part fiduciary test” under the Employee Retirement Income Security Act, “and therefore are fiduciaries in any event.”

The focus for RIAs “should be in continuing to comply with the [DOL fiduciary rule’s] Impartial Conduct Standards until we know what the final SEC rules will be,” Reish explains. “My expectation is that the SEC rules will require, at the least, standards similar to the Impartial Conduct Standards.”

SEC Chairman Clayton told a House Appropriations Subcommittee in mid-April that Reg BI for brokers embodies “core fiduciary principles.”

While the agency has called its new proposed rule for brokers “the best-interest standard,” Clayton told the subcommittee, “I want to be clear: For broker-dealers, there are core fiduciary principles embodied in that best-interest standard. In fact, those fiduciary principles, I believe, are the same as the fiduciary principles that are embodied in the investment advisor standard. “What has the agency done in its proposal?” Clayton asked rhetorically. “We’ve recognized that the relationship between and investment advisor and their client is a different type of relationship than a broker-dealer and their client. But we’ve sought to harmonize the actual duties that are owed recognizing those differences.”

While Aikin told me Reg BI would be “a step toward greater investor protection in the broker-dealer space,” the SEC “appears to intentionally avoid calling [Reg BI] a fiduciary standard. Anytime you are intentionally avoiding the best interest as fiduciary, it’s on the presumption that it is intended to be non-fiduciary, which if one of the main objectives is to produce clarity, that does not.”

Aikin says that “as the tide of regulation rises and falls,” occupying the “fiduciary high ground” will ensure brokers and advisors “have a lot less to worry about.”

As a practitioner in this current environment of uncertainty, “regardless of where you are on the [advice] spectrum, you could place your bets and guess on what’s going to happen in all these various areas, but really, the only safe place to be is aim high,” Aikin said. “That’s where the investment advisors and ERISA fiduciary advisors are the ones that occupy the high ground right now.”

Washington Bureau Chief Melanie Waddell can be reached at mwaddell@alm.com.