Finra chairman John Brennan says DOL rule has raised standard for financial advice

Says fiduciary rule will become the 'way business is done' — even if it is repealed

May 16, 2017 @ 2:24 pm

By Mark Schoeff Jr.

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Finra chairman John J. Brennan said on Tuesday that even if the Labor Department's fiduciary rule is repealed, it has elevated and put into plain language the idea of providing investment advice that's better for clients' returns than for financial advisers' revenue.

"Whatever happens to DOL, it served its purpose by getting best-interest terminology into the industry," Mr. Brennan, the former chairman and president of the Vanguard Group, said at the annual conference of the Financial Industry Regulatory Authority Inc. in Washington. "Firms should keep on that track. It's going to be the way business is done. The question is whether it is on June 10 or on June 10, 2022."

The DOL regulation, which would require financial advisers to act in the best interests of their clients in retirement accounts, was supposed to be implemented on April 10. That date was pushed back to June 9 so that the agency can reassess the measure under a directive from President Donald J. Trump that could lead to its modification or repeal.

If the DOL rule meets its demise, the concept will live on at the Securities and Exchange Commission and at Finra, the broker-dealer self-regulator, Mr. Brennan said.

"My guess is that the SEC and Finra are going to go down that path because it's the right place to be," Mr. Brennan said.

The Dodd-Frank financial reform law gave the SEC the authority to promulgate a uniform fiduciary standard for retail investment advice. It's not clear where the new SEC chairman, Jay Clayton, stands on the issue.

"I hope it will be part of the agenda," Mr. Brennan told reporters on the sidelines of the Finra conference.

Finra president and CEO Robert Cook said he supports the concept of raising advice requirements for brokers. They are currently governed by the suitability standard, which gives them latitude to sell high-fee investment products as long as they align with investors' needs. Investment advisers are held to a best-interests requirement.

"There should be a best-interest standard for brokers," Mr. Cook told reporters. "Whether it looks exactly the same as [the standard for] advisers, I'm not sure about that. I'm not saying I'm against it. At this point, the SEC would be the one to take the lead on this. If they came out with a best-interest standard, we might need to look at our suitability."

Mr. Cook's predecessor, Richard Ketchum, consistently urged brokers to act in the best interests of their clients, even if they are not forced to do so by regulation. He initially opposed the DOL regulation but softened some of his criticism after it was modified.

Financial industry critics say the DOL rule is too burdensome and costly and will price investors with modest assets out of the advice market. Supporters say it is necessary to protect workers and retirees from conflicted advice that leads to inappropriate high-fee investments that erode savings.

"The market gets the idea of best interest," Mr. Brennan told reporters. "Whether you're suitability or fiduciary, the great firms have always [followed] best interest. So, you get down to the mechanics."

Usually, the debate about investment-advice standards also leads to a discussion of a potential shift of adviser oversight from the SEC to Finra should regulation converge. Mr. Cook stayed neutral on that question.

"Right now, we're focused on our mission, which is to oversee broker-dealers," Mr. Cook told reporters. "The SEC has asked us to be focused on that mission so that they can allocate more of their resources to investment advisers."

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