Resources for Responding to the DOL Rule Micah Hauptman Consumer Federation of America

Transcription

1 Resources for Responding to the Micah Hauptman Consumer Federation of America 1

2 Resources for Responding to the Brief Background on Fiduciary Rule Finalized April 2016 Updated definition of fiduciary investment advice Prohibited Transaction Exemption relief to flexibly accommodate a range of business models (Best Interest Contract Exemption) 2

3 Brief Background on Fiduciary Rule One of the most open and inclusive rulemaking processes ever conducted 6 year process Received over 3,000 substantive comments Held 4 days of public hearings, hundreds of individual meetings with stakeholders 395-page Regulatory Impact Analysis Detailed preamble 3

4 4 Brief Background on Fiduciary Rule First phase of implementation (originally April 2017) Redefinition of fiduciary investment advice Best Interest Contract (BIC) Exemption transitional relief Impartial Conduct Standards Acknowledgment of fiduciary status Disclose material conflicts Designate person responsible for addressing material conflicts Recordkeeping requirements

5 Brief Background on Fiduciary Rule Impartial Conduct Standards: Best Interest standard: duty of prudence and duty of loyalty Will not charge more than reasonable compensation Will not make misleading statements 5

6 Brief Background on Fiduciary Rule Second phase of implementation (January 2018) Contract requirement under the BIC (IRAs) Firm must warrant that it has adopted and will comply with anti-conflict policies and procedures Point of sale disclosures on costs/conflicts and website disclosures 6

7 February 3 rd Presidential Memorandum (PM) calling on the DOL to prepare an updated economic and legal analysis on rule: Harmed or is likely to harm investors due to a reduction of access to products/services? Resulted in dislocations or disruptions to market? Likely to cause an increase in litigation, and an increase in prices? 7

8 Administration appears to have prejudged the outcome: Transition team member Anthony Scaramucci pledged to repeal the rule, (in)famously compared it to the Dred Scott decision White House NEC Director Gary Cohn s tortured analogy to allowing people to eat unhealthy food on menu, said rule deprives investors of that choice White House Press Secretary Sean Spicer called the rule a solution in search of a problem, claimed the DOL exceeded its authority with this rule 8

9 PM questions have already been exhaustively analyzed and answered Regulatory Impact Analysis Preamble 4 court decisions so far, upholding: The DOL s legal authority Rulemaking process Department s assessment of the retirement advice market, existing insufficient regulatory framework, costs and benefits of the rule, alternative regulatory approaches Rule s workability (TX judge cited to Financial Planning Coalition s amicus brief describing their experience) 9

10 60 day delay First phase (April 10 th June 9 th 2017) Redefinition of fiduciary investment advice Best Interest Contract (BIC) Exemption transitional relief Impartial Conduct Standards Acknowledgment of fiduciary status Disclose material conflicts Designate person responsible for addressing material conflicts Recordkeeping requirements 10

11 Enforcement come June 9th DOL: emphasis on assisting (rather than citing violations and imposing penalties on) those who are working diligently and in good faith to understand and come into compliance IRS: self-assessment for IRAs Private litigation, particularly rollovers 11

12 Further delay? Don t count on it Final delay rule makes it very difficult for the DOL to pass another delay Prudent approach is be ready to comply on June 9 th re: transitional requirements, January 1, 2018 re: full compliance Provide only best interest advice and document what you re recommending and why 12

13 Comment on reexamination just closed Rule opponents continue to offer dire predictions of the rule, little evidence Rule supporters continue to point to: Firms and advisers who show it s possible to comply with the rule Firms who have stated they intend to use the BIC Positive market developments 13

14 14 Financial Planners show it s possible Many Firms have stated they will use BIC: LPL, Ameriprise, Morgan Stanley, Raymond James, Mass Mutual, Commonwealth Financial Network, Nationwide, Allstate, USAA, and others Market developments: Costs for products/advice decreasing New product share classes being developed Decreased minimums for fee-based accounts Wave of compliance technology

15 15 My assessment at this point: More likely rule is revised rather than repealed June 9 th : core provisions kick in and disprove rule opponents dire predictions Existing litigation/threat of legal challenge Opponents modification priorities: Contract, class action provision Anti-conflict warranty Website disclosures Broader seller s carve-out

16 Litigation: 4 jurisdictions DC: DOL won at District Court, on appeal TX (3 consolidated cases): DOL won at District Court, on appeal KS: DOL won at District Court, on appeal MN: Awaiting District Court decision 16

17 Congress: always a threat House: a number of different vehicles to kill rule Senate: nothing going on currently 17

18 What happens in a world with no rule? Have we changed the conversation? Yes, but SEC/FINRA? Don t hold your breath If they act, expect fiduciary lite Securities regulators authority is limited 18

19 19 Questions?

20 Resources for Responding to the Micah Hauptman Consumer Federation of America Phone: (202)