Embrace of the Fiduciary Rule and the Spirit Behind it

By John Iekel • March 13, 2017 • 0 Comments
Not all of the reaction to the Department of Labor’s (DOL) fiduciary rule has been negative, or even grudging, acceptance. Every class had at least one kid who not only did their homework but also turned it in before the deadline — and it turns out that proclivity is alive and well in the boardroom too. To wit: some firms have been actively applying the fiduciary rule before it is fully applicable and they are required to do so.

Ascensus is one of them, according to Investment News’ Greg Iacurci. Ascensus Executive Vice President of Client Experience and Relationship Management Kathleen Connelly told him that in its work with Morgan Stanley Wealth Management in the development of a fiduciary product intended to help 401(k) plans with assets of less than $10 million control risk in serving those plans once the rule is in force, “Whether the regulation moves forward or whether it doesn't, the concepts that are a part of that [DOL] regulation were very much considered as the product was built out.”

PlanMember Financial Corporation is another. Its General Counsel Byron Bowman, in his public comment letter on the proposal that the DOL delay the applicability of the fiduciary rule, wrote that “PlanMember has spent the last year preparing for the implementation of new programs and processes to comply with the fiduciary rule. This has involved the development of a new product platform specifically developed for IRAs and other accounts covered by the fiduciary rule, the development of supervisory procedures and technological systems intended to ensure that PlanMember and its representatives are in compliance with the fiduciary rule, and to educate and prepare its representatives to engage with their clients in concurrence with these new facilities.”

Debate? So What?

The seemingly eternal regulatory and legislative tarantella concerning the fiduciary rule continues to spin, but will that matter ultimately? At least to Mary Anne Durall, senior vice president of strategy and corporate planning at the third party administrator SE2, it does not — and in a recent statement, she says SE2 is not alone. “While the parties — Administration, DOL, legal teams — to the rule continue to discuss delay, most carriers and distributors are making the decision to move forward with compliance,” RIAbiz reports her as remarking.

Financial Engines is one of them. Wrote Jones is his comment letter, “Based on our experience, we believe the Conflict of Interest Rule or a similar regulation is workable for investment advisors and beneficial for investors,” and that “we are confident the Conflict of Interest Rule or a similar regulation will further accelerate the trends toward low-cost, technology-based financial services and products, which will, in turn, make unconflicted advice increasingly cost-effective for advisors and accessible for investors of all means.”

The debate does matter to some firms, however. Centennial Securities Company was among the early adopters, which is why they seek a delay in applicability. In its public comment letter on the delay proposal, it wrote “we have spent significant time revising how our business runs, changing our policies and procedures necessary to make the enormous shift required by the new rules, drafting client correspondence and explanations of revised product offerings necessitated by the rule, and creating compliance and surveillance programs, amongst a host of other adjustments. Because of the uncertainty regarding this rule, and the President’s Memorandum, we have not communicated to clients the ways in which the rule will affect the products and services available to them. We strongly believe that clients will be bewildered, confused and uncertain if changes are announced that then need to be revisited in light of the President’s memorandum. The rule should not be applicable until the questions raised by the President are addressed and the new Secretary of Labor determines whether recission or revisions are required or appropriate.”

The Spirit of the Rule

Some firms may not care for the rule as it is written, but nonetheless support the spirit behind it and its overall purpose.

One is Securities Service Network, Inc. (SSN). In its comment letter, it said that while it does not support the fiduciary rule as currently written, it “supports a carefully crafted, universal fiduciary standard of care that will be applicable to all professionals providing personalized investment advice to retail clients.” Similarly, Doug Baxley, vice president, retirement and fiduciary services at Ladenburg Thalmann Financial Services in his comment letter wrote that while his firm does not support the rule as it now stands, “professionals should be required to do the following:

  • act in the best interest of the client;

  • provide advice with skill, care and diligence based upon the individual needs of the client; and

  • disclose material conflicts of interest, avoid them when possible, and obtain informed client consent to act when conflicts cannot be reasonably avoided.”

And a mentality and approach that embraces at least the spirit behind the rule, even if it is altered or rescinded, may come in handy from another perspective. Seth Safra, a partner in the employee benefits practice at Proskauer, remarked to benefitspro that enforcement still will take place. “Even in Republican administrations, the Labor Department takes prohibited transactions and conflicts of interest very seriously,” he said.

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