July 19, 2017
- President, TD Ameritrade Trust Company
Managing Director of Advisor Advocacy & Industry Affairs
To say June 2017 was a busy time for the fiduciary standard would be an understatement. It was the busiest month I’ve seen on the financial advisor regulation front in many years.
Two federal agencies, one state regulator and two influential professional organizations all announced higher standards of conduct for financial advisors. That’s encouraging, in that these moves further raise awareness about the fiduciary standard of care for investors and show that the call for a client-first approach is only gathering force.
Let’s break it down.
SEC Wants to Hear Your Views
For starters, the Securities and Exchange Commission (SEC) on June 1 asked the public for input on standards of conduct for Registered Investment Advisors (RIAs) and broker-dealers. It asks 17 questions but set no deadline for these comments.
The SEC has had the authority, under the 2010 Dodd-Frank reforms, to enact a uniform fiduciary standard for brokers and investment advisers, but has not yet done so. It may be feeling pressure, with a new chairman in Jay Clayton, to start moving ahead with a broader application of a fiduciary rule to all retail investor accounts.
On June 2, Nevada Governor Brian Sandoval signed a bill expanding the state’s fiduciary standard, previously applied to financial planners, to include broker-dealers, investment advisors and insurance company reps when giving financial advice. The law went into effect on July 1.
DOL Rule Lives On … For Now
One week later, on June 9, the Department of Labor’s Conflict of Interest Rule became applicable for those giving advice to retirement plans , a milestone event for American investors. We have a new fiduciary definition that will bring many more dispensers of financial services under the fiduciary umbrella. Simply stated, a financial advisor is now a fiduciary if they deliver investment advice to a retirement investor for compensation.
Likewise the DOL’s Impartial Conduct Standards are also now “applicable.” Financial advisors must give advice that is in the client’s best interest regardless of their compensation scheme. And, they must charge only reasonable compensation, as determined in the marketplace and must make no materially misleading statements to their clients.
Additional provisions of the DOL rule are now slated to come into effect on Jan. 1, 2018, though President Trump in February directed the DOL to review the rule’s provisions. The DOL has set a July 21, 2017, deadline for comments on whether the Jan. 1 date should be pushed back – highly likely — and an Aug. 6 deadline for comments on whether and how the rule provisions should be modified. Also very likely.
Notable in its absence: the DOL did not ask for comments whether the rule should be repealed in its entirety.
What’s in a Name?
The SEC’s new chairmen typically hear from the public when they take office. On June 13 the Chartered Financial Analyst Institute greeted Mr. Clayton with an open letter expressing the need for title clarification, recommending the SEC “require that anyone wishing to refer to their title and/or activities as advisory in nature… adhere to the Investment Advisers Act and the fiduciary duty implied by common law interpretation of the Act.”
In other words, brokers are brokers and registered investment advisers are RIAs. TD Ameritrade Institutional agrees with that title clarification – and enforcement of that distinction would go a long way toward reducing investor confusion caused in part by the SEC permitting brokers to do business as “financial advisors.”
Two Hats. One Standard.
Then, on June 20, the Certified Financial Planner Board of Standards (CFP Board) released its draft Code of Ethics and Standards of Conduct , which would extend the fiduciary standard beyond the current application to the financial planning part of the client engagement, to the financial advice part of the engagement. The draft is currently up for a 60-day public comment period ending Aug. 21.
This would address much criticism about “hat switching” by some CFPs. TD Ameritrade Institutional applauds the CFP Board for moving forward with this proposal, and for its transparent and thorough vetting process.
Two Agencies. One Standard?
With the month coming to a close, on June 27 DOL Secretary Alexander Acosta testified before the Senate Appropriations Committee on Labor, Health and Human Services, Education, and Related Agencies; the same day that the SEC’s Jay Clayton spoke before the Senate Appropriations Committee on Financial Services.
Both men delivered a common message: the two agencies will work together on a uniform set of fiduciary standards.
On the Move
There’s a lot of things in motion, and it’s hard to tell where any of these proposals will lead, but it’s pretty clear the fiduciary standard is on the march. As always, TD Ameritrade Institutional will be involved and keep independent RIAs posted.
On June 7, for example, we joined the Investment Adviser Association on Capitol Hill for a full day of meetings with lawmakers about issues impacting your business and your clients. And lest lawmakers forgot what we told them, three weeks later we joined the Financial Planning Association for its annual Advocacy Day in Washington on June 21.
We trust you will continue to share your thoughts with us, so that we can share them with policy-makers.