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New Fiduciary Regulation on the Horizon

New Fiduciary Regulation

New Fiduciary Regulation on the Horizon

New Fiduciary Regulation now seems to be more of a promise that it had been a threat. It has been more than a year since the 5th Circuit Court of Appeals vacated the Department of Labor new fiduciary regulation – more commonly referred to as the new fiduciary rule.  And it’s been nearly a year since the 5th Circuit Court of Appeals issued a mandate vacating the that same DOL new fiduciary regulation. Since then, there has been a lot of dithering and anticipation around the creation of a new fiduciary rule. State regulators in Nevada and New Jersey have come up with their own new fiduciary regulation proposals, with Maryland also considering one. Now, the Securities and Exchange Commission (SEC) has voted to pass the Regulation Best Interest, its own version of the “old” new fiduciary regulation, which has been in the works for the past year.

The new fiduciary regulation mandates that brokers and investment advisers act in their clients’ best interests. However, as the New York Times reports, consumer advocates believe the regulation has no teeth. According to the SEC, “the changes would help Main Street investors by tightening the standards governing brokers who sell investment products and outlining a fresh interpretation of the duties of investment advisers who provide financial guidance.” However, consumer advocates say that the new fiduciary Regulation Best Interest waters down rigorous fiduciary standards.

Is this the wild, wild west all over again? Does the SEC new fiduciary regulation re-open the loopholes of the industry by enabling unscrupulous brokers and investment advisers to be less than ethical in their actions and service to clients? Does it open a Pandora’s Box by confusing all involved as to what a fiduciary standard of care and fiduciary duty will mean? According to opponents of the SEC new fiduciary regulation, it is at best a weak guideline for financial professionals who provide investment services and advice.  Whenever the SEC new fiduciary regulation gets passed, it will likely take a considerable time for experts to fully distill, comprehend and communicate the regulation. The new fiduciary Regulation Best Interest section is 771 pages on its own, according to the New York Times.  The new fiduciary regulation would be slated to take effect 60 days after they are published in the Federal Register.

Plan sponsors spent years hearing how the old DOL fiduciary rule would make things better for them and their participants. Unfortunately, the build-up was only hype, as all came crashing to a halt last year when the Circuit Court vacated that version of the rule. However, all the years of discussion leading up to that pivot point did bring to the forefront the importance of new fiduciary regulation and why it is needed. The interest was to protect participants and plan fiduciaries from investment professionals with either very little knowledge or less than best intentions. Vast amounts of money and time were spent by financial firms, service providers and employers as they prepared to implement the DOL rule.  However, it was all for naught. Or was it?

The responsibility to prudently manage a qualified retirement plan falls squarely on the shoulders of the plan sponsor. It always has. In addition, plan sponsors should expect to rely upon their retirement plan advisors for good advice and excellent service. But that also means holding all service providers accountable and requiring they be good stewards.  This includes monitoring the advisor, to ensure they are serving in the participants’ best interests. (Good retirement plan advisors will do the right thing regardless of Rule, Act or Regulation.)

What this all comes down to is, regulatory oversight or not, it behooves plan sponsors and financial professionals to do right by retirement plan participants. Yes, ERISA law requires it, but so should the moral compass. Employees work hard for 30 to 40 years to build savings so they can live with dignity in retirement.  Retirement plan advisors and service providers should want to help the plan participants to do just that. This seems as much an ethical issue as a legal one.

After all the past discussion at retirement committee meetings – concentrating on fiduciary responsibility – more plan sponsors are better informed of their own fiduciary duties.  Regardless of the form that any updated or new fiduciary regulation may take, the plan sponsors’ commitment to doing what is best for plan participants should remain front and center. 

Steff Chalk

Steff Chalk

Managing Editor at 401kTV
Steff C. Chalk is Executive Director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff also serves as Executive Director of The Plan Sponsor University and is current faculty of The Retirement Adviser University.
Steff Chalk

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