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Differences between the Advice Rule and the Fiduciary Rule

Estimated reading time: 1 minutes, 45 seconds

We recently outlined six things to know about the proposed Advice Rule from the Securities & Exchange Commission (SEC). Today, let’s go a little further and contrast this proposed rule with the Department of Labor (DOL) Fiduciary Rule. Please note that this comparison is very general. With the Advice Rule in its infancy, any differences mentioned below may be nullified by future modifications. Furthermore, greater differences could appear with any modification.

Advice RuleBut, as it stands, what are some differences between the Advice Rule and the Fiduciary Rule?

First, the Advice Rule proposal of “regulation best interest” isn’t the “best interest contract” (BIC) proposed in the Fiduciary Rule. The SEC’s best interest standard would actually be enforceable under its current arbitration framework. By meeting a variety of conditions, a broker-dealer must “act in the best interest of the retail customer” when a recommendation is made and not put his or her own financial or other interest ahead of the customer.

The Advice Rule’s proposed guidance also broadens the pool of investors. Instead of just retirement savers (Fiduciary Rule), the proposed regulations cover the general retail investor.

But the guidance also narrows the pool of investment recommendation providers. The proposed rules only apply to broker-dealers and registered investment advisors (RIAs). They generally do not apply to banks or insurance company personnel. The DOL rule, by contrast, included investments in certificates of deposit (CDs) and specific insurance products.

As we’ve discussed on this site, the Department of Labor (DOL) issued final regulations on fiduciary investment advice for retirement savers in 2016. However, the Fifth Circuit Court of Appeals ruled last month that the DOL exceeded its authority and the regulations would be vacated. And earlier this month, the department announced non-enforcement of its Rule via Field Assistance Bulletin (FAB) 2018-02. The bulletin confirmed it would not pursue claims against investment advice fiduciaries until other future guidance is issued.

So, perhaps the biggest difference between the two rules is the department in charge of oversight. Instead of the DOL providing oversight, it would be the SEC.

The SEC has requested comments from the public during a 90-day period due by August 7, 2018.

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