Although in late 2017 the Department of Labor extended the transition period for fiduciary rule exemptions until July 1, 2019, there are still many changes afoot.
And, as the Fifth Circuit Court of Appeals recently vacated the rule, there is more uncertainty than ever. However, many consultants who work with retirement plans are already operating in fiduciary capacities.
In the realm of the individual investor though, the situation is less clear. Prior to the DOL rule, advisors considered “suitability” as the watchword, as this is the FINRA standard for investments. The 1940 Act requires fiduciaries to disclose conflicts of interest and compensation, while the best interest prudent man rule imposed by ERISA is the highest fiduciary standard.
In the current limbo, the DOL rule changed the standard of care for IRAs from suitability to the ERISA level. The public in understandably confused regarding the standard of care they are entitled to from their advisors.
Some believe that the transition period is intended to give the SEC and FINRA time to square their regulations with the DOL. Many industry professionals believe that a variant of the standard of care requirement is likely to remain for non-ERISA accounts, although the standard might not reach the ERISA level of care. The original version of the DOL rule also included disclosure requirements, and if the SEC adopts similar rules for retirement investors, this will likely be reflected in the post-transition DOL rule.
However, the SEC’s recent priority letter made no mention of a draft fiduciary duty rule underway. Rather, the SEC said that it will look at ensuring “there’s an appropriate disclosure of conflicts and costs and it will be looking at IRAs in wrapped accounts.” No mention is made of fiduciary duty regarding the general brokerage relationship.
To learn more about what fiduciary standards may be in store, please visit:
The Fiduciary Standard Is Still Evolving | Wealth Management