Oversight in the Post-Fiduciary Rule Age

  • The Department of Labor’s fiduciary rule has been invalidated, but other regulators are pushing forward with their own similar rules, including the Securities and Exchange Commission (SEC), certain states (such as New York), the National Association of Insurance Commissioners, and the Certified Financial Planning Board.  
  •  The SEC released its own comprehensive proposal in April 2018, shortly after the Fifth Circuit Court of Appeals voided, or “vacated,” the DOL fiduciary rule. 

The Department of Labor’s (DOL) now-defunct fiduciary rule sparked widespread governmental interest in the standards of conduct that apply
to advice regarding financial matters.  For a number of years, SEC had
considered whether to issue regulations that would increase the standard of
conduct applicable to investment advisers and broker-dealers.  The SEC
finally released its own comprehensive proposal in April 2018, just weeks after the Fifth Circuit Court of Appeals voided, or “vacated,” the DOL fiduciary rule.   

Under the SEC’s proposal, a broker-dealer must act in the “best interest” of a retail customer at the time a recommendation is made without placing the broker-dealer’s interests ahead of the customer’s interests. Unlike the DOL’s fiduciary rule, there is no requirement for the broker-dealer to disregard its own interest.  Comments on the SEC’s proposal were due in August, leaving stakeholders to wait and see what the final rule package looks like.     

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A number of state governments are also taking action to impose a fiduciary or “best interest” requirement on certain financial professionals.  For example, in July 2018, the New York State Department of Financial Services finalized regulations that newly impose a best interest standard on insurers and insurance producers in connection with any transaction or ecommendation involving a proposed or in-force life insurance policy or
annuity.  Although employer retirement and life insurance plans are exempt, the New York rule is otherwise very broad.  And, just in September, New Jersey Governor Phil Murphy announced that the state will be issuing rules that will impose a fiduciary duty on all New Jersey investment professionals.

Related efforts are also underway by the National Association of Insurance Commissioners (NAIC), which is considering whether to include a best interest or consumer-focused standard of conduct in its model regulation on annuity transactions.  In addition, the Certified Financial Planner (CFP) Board of Standards will, beginning October 1, 2019, require CFP  rofessionals to act as a fiduciary under a broader set of circumstances than what they are required to do today.

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Exp. July 31, 2021