Fifth Circuit Issues Mandate Vacating DOL Fiduciary Rule — Your Firm Should Remain Vigilant as the SEC Steps In

Even though the Department of Labor’s (“DOL”) Fiduciary Rule (which was designed to expand the definition of what constituted fiduciary advice as part of the Employee Retirement Income Security Act of 1974 (ERISA)) has been vacated by the 5th U.S. Circuit Court of Appeals, broker-dealers and investment advisers need to remain cognizant of the proposals the SEC (Securities and Exchange Commission) rolled out in April 2018.  Regulation Best Interest, which is looking to establish a “best interest” standard for broker-dealers,  and the SEC’s proposed interpretation of the standard of conduct for investment advisers.

In addition, the SEC remains highly focused on services being provided by firms to senior investors and retirement accounts.  In fact, they began an exam initiative specific to retirement accounts in 2015, which mainly concentrates on the reasonableness of investment recommendations, conflicts of interest, disclosures, and products sold to investors saving for retirement.

A Wait-and-See Approach Is Not Appropriate Given SEC Actions

While many firms were working diligently to meet the new requirements that the Fiduciary Rule would have put into place, the mandate to vacate the rule does not mean that all the efforts were wasted.

In fact, based on previous and recent actions taken by the SEC, that preparation will most likely pay dividends. The DOL’s Fiduciary Rule was essentially consumer protection designed to protect those most vulnerable to abuse — aging investors. Aging investors are a particular concern because, even when they do not suffer from diminished capacity or elder abuse, they simply don’t have the time to recover from a severe financial hit after a relationship with a disreputable firm ends with a loss of retirement savings.

Because of this, the SEC, with its focus this year (as in years past) on the protection of retail investors (and more specifically, on seniors and those saving for retirement), has proposed rules that cover some of the more valuable protection aspects of the DOL’s Fiduciary Rule.

In particular, the proposals mainly center around the following:

  • Requiring broker-dealers to act in the best interest of clients and not place their interests ahead of a client when making recommendations;
  • Requiring broker-dealers to disclose conflicts of interest to clients pertaining to the recommendations/investment products;
  • Requiring broker-dealers to adopt policies and procedures to address conflicts of interest surrounding recommendations and financial incentives; and
  • Clarifying the fiduciary duty standard applicable to investment advisers.


Education for Retail Investors Remains Critical

Regardless of when, or even whether, the SEC finalizes its current proposals, firms should continue to ensure that safeguards are in place to help protect retail investors, especially those more vulnerable such as retirement investors and seniors. Education is key and firms should have a robust program in place that provides important information and training to both clients and employees. Learn more about how to educate retail investors here.

Click here to learn more about how Core Compliance can assist with the implementation and/or enhancement of employee training programs.

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