FSI renews efforts to scrap DOL rule and push for universal standard by SEC

The trade group for independent broker-dealers will take the offensive in trying to shape the kind of fiduciary standard it believes will be advantageous for its business in the future

Jan 24, 2017 @ 12:32 pm

By Mark Schoeff Jr.

The Financial Services Institute plans to go on offense this year to shape an investment-advice standard to replace a Labor Department regulation that is likely to be delayed.

The organization, which represents independent broker-dealers and financial advisers, is going to try to take advantage of having President Donald Trump in the White House as well as a 2018 election cycle that includes vulnerable moderate Democratic senators in states carried by Mr. Trump who are usually sympathetic to the financial industry.

“Our opportunity with this unexpected change in political circumstances is to move into a proactive stance of advocating for the regulation of the way we want our business to be in the future rather than the defensive crouch we've been in for the last several years defending what we've done in the past,” FSI president and chief executive Dale Brown told reporters Tuesday at the FSI annual conference in San Francisco. “Our advocacy for a uniform fiduciary duty is right at the top of that list.”

Like other financial industry trade groups, FSI is confident that the Trump administration will soon delay the April 10 initial implementation date of the DOL rule, which would require financial advisers to act in the best interests of their clients in retirement accounts.

“It's their intent to act,” Mr. Brown said.

Opponents say that the DOL rule is too complex and exposes financial advisers to the risk of class-action lawsuits that will substantially increase the costs of giving and receiving advice. They say it will price investors with modest assets out of the advice market.

The Obama administration asserted that the regulation is necessary to protect workers and retirees from inappropriate high-fee investments that erode savings.

The FSI intends to work to replace the DOL rule with a fiduciary standard proposed by the Securities and Exchange Commission that covers are retail investment accounts.

“Shame on us as an industry if we are not there with a constructive proposal on how to have a responsible regulatory environment to fill that gap,” said Richard Lampen, president and chief executive of Ladenburg Thalmann and chairman of the FSI board.

The Dodd-Frank financial reform law gave the SEC the authority to promulgate a fiduciary-duty rule that protected several aspects of the broker business model, such as charging commissions. But the agency has not been able to propose a regulation due to divisions over the issue on the five-person commission.

Over the next few weeks and months, the Senate will consider Mr. Trump's nominee as SEC chairman, Jay Clayton, as well as nominees for two other open seats.

“It's a new SEC and new leadership,” Mr. Brown said. “The old assumptions of what had them stuck I don't think it's fair to say they still apply. We'll have a more than fair shot of making the case of why this is important.”

When it comes to shaping a new fiduciary standard, lawmakers such as the vulnerable Democrats who are up for re-election in 2018 – Sens. Joe Donnelly (Ind.), Claire McCaskill (Mo.), Jon Tester (Mont.), Heidi Heitkamp (N.D.) and Joe Manchin (W. Va.) – could play a role.

“You might see Capitol Hill weigh in a little more assertively than they did in Dodd-Frank to give the SEC some direction because of the critical importance of this issue,” Mr. Brown said.

During the fierce lobbying over the DOL rule, the Obama administration was able to keep wavering Democrats on board. Whether and in what form it survives will depend in large part on Senate Democrats, whose caucus is big enough to block legislation.


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