FSI aims for workable best-interest standard this year

Group supports the SEC's effort to establish a uniform standard of care

Feb 27, 2018 @ 10:44 am

By Dale Brown

It would be a great understatement to say 2017 was a year of momentous change for our industry. Reverberations of the Department of Labor fiduciary rule were felt far and wide, while the new political climate created new opportunities to advance our longstanding objective of securing a regulatory environment that better serves the needs of both clients and advisers.

As the industry and the regulatory environment continue to shift in 2018, the Financial Services Institute will adapt as well, with an aggressive, focused approach to the advocacy issues that matter most to our members and their clients. Our advocacy priorities for 2018 include:

Issues Impacting Clients

Securing a workable best-interest standard of care. FSI vigorously supports the SEC's efforts to establish a uniform best-interest standard of care that strengthens protections for all retail investors without undermining access to advice.

We are optimistic that an SEC-developed rule will greatly simplify point-of-sale disclosures to clients — while also making them more effective and allowing them to be distributed electronically — and that the commission will provide firms with a template to provide guidance on appropriate disclosure.

An SEC-administered uniform standard would also be a vast improvement over the DOL rule since it would eliminate the DOL standard's mechanism of enforcement through a private right of action.

We are pleased to have made considerable progress toward establishing a productive dialogue with new SEC Chairman Jay Clayton and his leadership team, and we continue to hope to see a proposal from the SEC by the middle of this year.

We will urge individual states to refrain from implementing their own state-specific fiduciary measures before the standard is fully resolved on the federal level to avoid further fragmented standards of care, which cause confusion and uncertainty for the industry and its clients.

Developing sensible protections from high-risk advisers and firms. FSI will continue to support efforts to protect clients from advisers and firms that have clear records of harming investors. At the same time, we will work to ensure that required disclosures are accurate, up-to-date and relevant to investor protection.

Preventing financial exploitation of vulnerable adults. We will continue to advocate for adoption of the Senior Safe Act and NASAA model rule to protect vulnerable seniors from exploitation.

Issues Impacting Financial Services Firms, Advisers

Obtaining permanent protections for independent contractor status. Supporting the classification of independent advisers as independent contractors — and advocating for legislation that will permanently protect this status — will continue to be a priority this year. We will explore dialogue with the Treasury Department and the IRS, among others, to find a solution to this challenge.

Reducing burdens on business entities operated by financial advisers. As advisory business models have evolved, modernizing the rules that prohibit payments of commissions directly from broker-dealers to advisers' registered entities has become a strategic imperative.

We were pleased earlier this year to drive progress toward this goal via the Tax Cuts and Jobs Act, which permitted pass-through taxation for certain advisers (subject to an income-level cap) on investment advisory fees. We will continue to work with the SEC and others toward a more robust solution for all advisers and their businesses.

Securing a level playing field for firms and advisers. We will continue to support comprehensive harmonization of regulations for investment advisers and broker-dealers going forward.

We are pleased that the SEC has recently dedicated additional resources to enable more frequent examinations of investment advisers.

Issues Impacting the Financial Services Industry

Simplifying and streamlining the DOL fiduciary rule. We will work with senior DOL leaders to improve the fiduciary rule by advocating for measures that would make it clear that advisers and firms that have complied with an SEC fiduciary standard are also compliant with the DOL rule, among other initiatives.

Securing cost-benefit analysis for new rule proposals and retrospective rule review processes. This crucial reform has been raised in the Financial CHOICE Act and other bills we support, including Senate Banking Committee Chairman Mike Crapo's (R-Idaho) pending Dodd-Frank reform measure. We will continue to advocate in favor of these bills in 2018.

Developing feasible solutions to the problem of unpaid arbitration awards. We support efforts to impose penalties or other measures on advisers and firms that fail to pay arbitration awards; however, we will oppose proposals to levy increased fees on other industry members or require new insurance policies in response to this problem.

We look forward to continuing to drive positive results for our member firms and advisers in 2018 as we work to advance these advocacy priorities.

Dale Brown is president and CEO of the Financial Services Institute.


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