“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.