Fiduciary Rule Challenges & SEC Regulatory Gaps
Let the Backlash Begin
Welcome to the Ignites news brief, a roundup of recent key stories.
The?Department of Labor?released its long-awaited fiduciary rule late last month.
Check out the?Ignites fiduciary rule cheat sheet, which breaks down the biggest changes between the October 2023 proposal and what came out in April.
Industry executives have acknowledged that the final rule is a much-improved version of the initial proposal. But that?doesn't mean they like it.
Last week, the?Federation of Americans for Consumer Choice, which represents insurance agencies and annuities marketers, filed a?lawsuit in Texas?federal court aimed at stopping the nine-day-old rule.
It was hardly a surprise.
Well before the rule was released, lawyers and industry participants said a legal fight was all but guaranteed. After all, the new rule aims at replacing the 2016 version, which was shot down on appeal by the Fifth Circuit.
But the 2018 court order to vacate the version of the fiduciary rule came only after asset managers and distributors alike had invested heavily in retooling menus, processes and compliance systems.
The Texas lawsuit points to that appellate court ruling, calling the new rule "virtually indistinguishable" from the last.
The rule, which attracted?hundreds of comments?after it was proposed, is slated to take effect Sept. 23. The compliance deadline is one year after that.
The road to get here has been?long and winding, spanning at least 14 years. Rule proponents say it is about time the DOL firm up its parameters for what constitutes a fiduciary. After all, the industry today operates under a standard set in 1975.
But others think the rule may be overkill. A lot has changed even since the last DOL rule attempt. Perhaps the most notable example is the introduction of the?Securities and Exchange Commission's?Reg BI.
Regulation Best Interest, which took effect in 2019, established a "best interest" standard for broker-dealers working with retail investors.
At the core of this battle is the defined contribution rollover market, which straddles DOL and SEC turf.
When people leave their employer-sponsored retirement programs, which fall under DOL supervision, they often seek advice as to what to do with that money from a retail advisor. Often, that money ends up in an Individual Retirement Account, which, unlike workplace plans, is not covered by the Employee Retirement Income Security Act.
And there is a lot of money at stake. In 2022, investors rolled over $780 billion, according to data from?Cerulli Associates. By 2028, the Boston-based researcher expects it to hit about $900 billion annually.
In a?poll?to which 272 Ignites readers responded last week, 40% said that the new DOL rule may be "an issue" given Reg BI. Another 28% said the new rule will block many savers from access to advice.
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