SEC Proposes its Own Fiduciary Rule

The DOL’s fiduciary rule has been a point of contention in the industry. Many financial groups claimed that the rule was overly burdensome and there was a fear of the rule driving up the cost of providing financial advice regarding retirement. The 2-1 decision from the U.S. Fifth Circuit Court of Appeals voiding the rule was a big win and it looks like there may be another one on the horizon!

That potential victory comes in the form of a fiduciary rule proposed by the Securities and Exchange Commission (SEC). Issued on Thursday, this rule would not pile on restrictions for brokers and advisors. The rule was approved by the SEC in a 4-1 vote and leans greatly in the favor of the industry, which is what critics of the rule are hanging their hat on.    The SEC proposed rule continues the status quo. Of course, this is a battle won in a long war and we will have to wait and see how the new rule stands up against Congress.

But, for now, let’s talk about what’s in the proposed SEC fiduciary rule and what it could mean for brokers and advisors!

The proposed rule puts forth different standards for brokers and advisors, in acknowledgment of the differences between how the two maintain relationships and dispense advice. For brokers, the SEC rule requires the “best interest” standard that we all know well by this point; no broker can put their own interests or the interests of the firm they represent over the interests of their client. The SEC proposal also provides some flexibility in terms of conflicts for brokers. The rule does not prohibit a broker-dealer from having conflicts, so long as the broker-dealer discloses those conflicts when making a recommendation. These disclosures would include those related to compensation and in-house products.

Advisors must abide by a more-stringent fiduciary standard. Critics of the rule claim that the proposal blurs the distinction between standards of care between brokers and investment advisors. The rule also provides no clarification on the difference between a sales and an advisory relationship. This has cast some doubt as to whether the rule will ever be successfully implemented.

Another point that the proposed SEC fiduciary rule addresses is the occasionally muddy waters of titles. Per the SEC rule, brokers and broker-dealer firms cannot call themselves “advisors/advisers.” However, hybrid RIA/brokers are exempt from this and open to some flexibility.

Both advisors and brokers will be required, under the new rule, to provide clients with a relationship-summary disclosure. This would detail the nature of their relationship, the services and costs associated, any existing conflicts of interest, an expected standard of conduct, and any legal or disciplinary events or actions.

It remains to be seen what the future of the SEC proposed fiduciary role will be.  The proposal is currently in a public comment period that will last 90 days from the date the proposal was issued (Apr. 18). Additionally, the AARP has thrown their hat into the ring with an attempt to revive the DOL fiduciary rule. The AARP, backed by attorney generals from various states, have appealed to the Fifth Circuit and are requesting permission for an en banc review of the ruling against the DOL rule.

The Boon Group is dedicated to providing effective investment management services. Asset allocation? You bet. Performance monitoring and portfolio analysis? We got this! At Boon, we are set up to be a Fiduciary and always act in the best interest of our clients; the one constant in these uncertain times. Boon isn’t shaken by these changes and are steady in our commitment to you!

This is a developing issue that we will be watching closely. Follow the Boon Blog for the latest in industry updates and all things Boon! You can also catch us on Facebook, Twitter, and LinkedIn!

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