Thursday, April 26, 2018

NASAA report touts benefits of DOL's vacated fiduciary rule

By John M. Jascob, J.D., LL.M.

A newly-released NASAA report stresses the investor protection benefits that resulted from the Department of Labor's now-vacated fiduciary rule. The report notes that broker-dealer firms were making significant progress in improving their training, standard of care, and account opening materials in order to comply with the fiduciary standard of care that the rule imposed on brokers providing investment advice to retirement accounts. Given the $435 billion of retirement funds that were rolled into IRAs in 2014 alone, NASAA believes that these advances should be maintained.

Under the DOL’s fiduciary rule, broker-dealers that make recommendations to ERISA accounts would be held to a fiduciary standard of care absent reliance on specific exceptions. Although the final rule was adopted in 2016 after six years of development, President Trump mandated that the DOL reexamine the rule shortly after he took office, and the agency subsequently delayed imposition of the full terms of the rule until July 1, 2019. The Fifth Circuit Court of Appeals then vacated the rule in its entirety on March 15, 2018. On April 18, the SEC proposed its own rulemaking package concerning the standards of care applicable to investment advice given by broker-dealers and investment advisers.

Forward progress. The report by NASAA’s Market and Regulatory Policy and Review Project Group notes that none of 96 broker-dealers surveyed was providing a standard of care other than suitability to IRA rollovers prior to June 9, 2017, the effective date of the fiduciary rule’s best interest standard. In order to meet the new standard, however, many broker-dealers undertook significant steps and expended considerable resources to modify their policies and practices for handling IRA rollovers.

These compliance efforts by broker-dealers included developing new policies and procedures and providing guidance to agents administering these accounts. One firm submitted materials it planned to use with brokerage clients after the June 9 implementation date, including a three-page checklist of all features of an account rollover comparing and contrasting the non-investment features of an employer-sponsored retirement program account with an IRA account.

“With the responsibility of saving and investing for retirement increasingly falling on the shoulders of hard-working Americans, we must make sure that they have the peace of mind that all qualified financial professionals are giving them advice that is in their best interests,” said NASAA President Joseph Borg in a news release. “The investor protection gains made as a result of the Department of Labor’s fiduciary rule should be preserved in any subsequent rulemaking by the SEC or other agencies. It would be a shame to let the pendulum swing back.”