Some suspense surrounds the fate of the
Department of Labor fiduciary rule.
Among the cliffhangers: Will new Labor Secretary Alexander Acosta
extend the delay of the regulation's implementation date beyond June 9? What part of the rule will be modified as a result of the reassessment called for by President Donald J. Trump? Or will it be repealed altogether? If it is repealed, will the
Securities and Exchange Commission step into the void and propose its own uniform fiduciary rule for retail investment advice?
Here's a question that's not so suspenseful: What kind of new fiduciary standard is on the wish list of industry opponents of the DOL rule? Spoiler alert: They don't want one.
They want a modification of the suitability standard that governs brokers' sales of investment products, and they want it to focus on disclosure.
The Investment Company Institute, which represents the mutual fund industry, is the latest trade association to state the direction in which it wants the advice debate to go.
"We are calling upon the SEC to propose a harmonized best-interest standard for broker-dealers that would enhance, rather than replace, existing suitability obligations," ICI president and chief executive Paul Schott Stevens said at the organization's
general membership meeting last week.
The ICI's defense of the suitability standard, which requires brokers to sell investment products that suit a client's risk tolerance, time horizon and other factors,
resembles the approach the Securities Industry and Financial Markets Association is advocating.
SIFMA, another major trade association for financial firms, has proposed its own best-interest standard. What SIFMA did is essentially update the suitability standard.
The recent statement by Mr. Stevens and the outline provided by SIFMA draws the battle lines for a possible SEC attempt to write its own fiduciary rule, should the DOL measure be substantially changed or eliminated. Proponents will say — in fact, have said — that the industry is proposing a fiduciary standard "in name only." Tweaking the suitability standard doesn't make it a true best-interest standard like the one that investment advisers must now meet.
Backers of the DOL rule say it is the closest regulators have come to establishing a fiduciary standard. In fact, a participant on an ICI panel following Mr. Stevens' speech wondered why so many in the industry are resisting the DOL regulation's requirement that financial advisers act in the best interest of their clients in retirement accounts.
"It strains credulity to say, 'Let's not have a rule that forces us to do that,'" Eli Broverman, co-founder of
Betterment, said at the ICI event.
He was responding to another industry official who joined him on the ICI panel, Ben Huneke, managing director and head of investment solutions at Morgan Stanley Wealth Management. Mr. Huneke said he supports a best-interest standard for advice, but that the DOL rule "has a lot of unfortunate consequences practically."
"The high-level direction is good for the industry, and we embrace it," Mr. Huneke said.
Sorting out what that means won't be easy.
"The devil's in the details," said Skip Schweiss, managing director of adviser advocacy and industry affairs at TD Ameritrade Institutional, in an interview. "What does a harmonized best-interest standard look like?"
The industry wants a best-interest standard but also wants suitability to be its foundation. That's fodder for a many-years war, if not a 100 Years War.
