As this issue of “Investment Advisor” hits your inbox or mailbox, the compliance date for the Securities and Exchange Commission’s Regulation Best Interest and Form CRS is set to officially kick in June 30.
That is, if the U.S. Court of Appeals for the 2nd Circuit rules in favor of the SEC and upholds Reg BI in the case brought against the rule by XY Planning Network, seven states and the District of Columbia.
SEC Chairman Jay Clayton signaled that he was confident the SEC would prevail by issuing a statement in mid-June confirming the June 30 compliance date.
He warned advisors and broker-dealers that they must take special care when recommending 401(k)/IRA rollovers and withdrawals, complex or risky products as well as coronavirus-related investments and SPACs, or special purpose acquisition corporations.
The application of Reg BI to recommendations of rollovers and withdrawals from retirement accounts is one of the rule’s “most significant enhancements over the status quo,” Clayton said, and these recommendations “should be approached with care.”
Broker-dealers and advisors should be “particularly attuned” to their regulatory obligations in light of the additional flexibility Congress recently provided investors to take withdrawals from certain accounts.
The Coronavirus Aid, Relief and Economic Security (CARES) Act allows eligible participants in certain tax-advantaged retirement plans to take early distributions of up to $100,000 during this calendar year without being subject to early withdrawal penalties and with an expanded window for paying the income tax they owe on the amounts they withdraw, he explained.
“By waiving early withdrawal penalties and other limitations tied to retirement accounts, Congress provided investors with substantial flexibility to access these plans in order to weather financial hardships related to the pandemic,” Clayton said.
History of This Column and Fiduciary
As you know, The Playing Field has rightly followed the fiduciary debate as it has unfolded. It goes without saying that the ongoing “fiduciary” debate sits at the core of how advisors and broker-dealers can navigate the investment services field.
I actually started The Playing Field way back in 2002, when I was New York Bureau Chief for Investment Advisor Magazine — a position I held for two years before returning to my Washington journalism roots. Back then, there was no digital presence — only IA. My then editors sat me down and said something along the lines of: “Think up a column topic.” So I did.
The concept of The Playing Field was to not only examine how the advisory and brokerage industries were competing with one another, but to also look at how the players — in and around these industries — were shaping the rules that dictated how they could navigate.
Which players am I referring to? Well, there’s a plethora — presidents, lawmakers, SEC chairs, lobbying groups, industry officials, lawyers, cabinet agency heads (such as the Department of Labor, for instance).
Getting back to the current issue at hand, the run-up to the June 30 effective date for the SEC’s Reg BI has been culminating for years under the banner of the fiduciary duty battle. That is, getting brokers to adhere to the same fiduciary standard as investment advisors.
Many SEC chairs have taken up the mantle — during my time covering the agency: Christopher Cox, Mary Schapiro, Mary Jo White — but political differences within the agency and on Capitol Hill torpedoed efforts to issuing a “fiduciary” rule.
Needless to say that scores of lawmakers have also had their hands in the fiduciary rulemaking pie.
Clayton, however, made addressing the fiduciary issue — and eventually passing a “best-interest” rule — his top priority. He was able to wrangle a 3-1 vote to pass the four prongs of the advice-standards package — Reg BI, the Form CRS Relationship Summary, the Standard of Conduct for Investment Advisers, and a new Interpretation of “Solely Incidental.”