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4/24/15 - Labor Department Proposes Fiduciary Standards

The Labor Department’s plan for stronger oversight of retirement advice is likely to have profound implications for brokers, investment advisers, and other professionals, including insurance agents. 

The April 14 proposed conflict-of-interest rule marks the first major step in U.S. regulators’ broad effort to revise the broker-dealer regulatory framework. It follows Securities and Exchange Commission Chair Mary Jo White’s mid-March statement that the commission would move forward with a uniform rule on fiduciary standards for brokers and investment advisers (see here for Promontory’s update on Chair White’s statement).

Financial professionals have expressed concern that complying with similar rules issued by Labor and the SEC will be difficult and costly. The regulators’ authorities, while overlapping, are different, and the onus will be on broker-dealers to satisfy both. The SEC’s authority stems from congressional authorization to implement a uniform fiduciary standard for investment advisers and broker-dealers; DOL’s proposal would expand the scope of retirement advice covered by the Employee Retirement Income Security Act’s fiduciary protections and strengthen the requirement for advisers to put their client’s best interests first.

While some within the financial industry have been vocal about the threat of the new standards, others have urged a more cooperative approach and supported the notion of consistent and higher standards for investment professionals.

Despite Chair White’s recent statement in support of the commission’s taking action, the timeline and direction of any SEC rulemaking remains vague. Firms subject to both regulators’ rules may soon face a strategic dilemma — whether to move quickly and adapt to comply with the DOL’s requirements, or delay major changes until the SEC makes the contours of its approach better known.

Waiting for the SEC, however, may be difficult given DOL’s recent action. Firms will need to consider how to move toward compliance in a way that avoids disrupting business operations and unnecessary costs and delays, while meeting regulatory expectations.

Contact Promontory

Promontory helps regulated entities, including broker-dealers and investment advisers, understand obligations to their clients. We would be happy to discuss questions about the DOL’s proposed rule and the SEC’s pending initiative, and how you can prepare for regulatory changes to come. For more information, please contact:

Konrad Alt
Managing Director, San Francisco
+1 415 986 4160

Michael Sullivan
Director, Washington, D.C.
+1 202 384 3508