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Fiduciary Rule Already Making a Comeback?

Estimated reading time: 1 minutes, 50 seconds

Well, here we go again. Last week, Department of Labor (DOL) Secretary Alexander Acosta seemed to confirm the DOL is working to revive the department’s fiduciary rule. Barely a year ago, the previous fiduciary rule was struck down by the 5th Circuit Court.

The rule would have required brokers to act in the best interest of “retail” (retirement) account holders. But this was panned by many in the financial industry. Many industry experts felt the rule went overboard and would have been costly and difficult to regulate.

Now, it appears the DOL will issue guidance based upon the Securities & Exchange Commission’s (SEC’s) final rules.

According to Acosta, the DOL is working with the SEC while the latter completes its advice standards rule. The SEC’s standard isn’t a uniform standard, so the two-tiered approach to advice (broker-dealer vs. advisors) would remain. Broker-dealers and brokers would be prohibited from using the terms “adviser” or “advisor” in specific communications with retail clients. And it leaves the door open for potential changes down the road to advisors’ fiduciary standards.

One month after the DOL rule was vacated, the SEC voted to propose a new best interest standard. Also, the DOL’s self-imposed deadline to consider “regulatory options” is the same as the SEC’s: September 2019.

Many who opposed the DOL rule seem supportive (perhaps with hesitation) of the SEC’s proposal, specifically its Regulation Best Interest. However, others fear the SEC’s proposed guidance doesn’t go far enough. They believe that where the DOL rule showed enough teeth to dissuade conflicts of interesting, the SEC proposed guidance doesn’t.

Others also fear that retail savings remain vulnerable with or without the new proposed rule. Keep in mind that federal law requires conflicts of interest to be eliminated in retirement accounts. So, is the new guidance enough to sufficiently protect retirement accounts?

Whether it’s a major overhaul or an upgrade from a “suitability” standard to a “best interest” standard, the industry will likely remain divided on whether such a rule is necessary and, if so, whether it goes far enough. Kingdom Trust will stay on top of this to ensure you know exactly what questions to ask your broker-dealer or advisor once the new changes, whatever they may be, become the standard.

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