"Compliance Nightmare" Possible in 2016, SIFMA Says

Advisors and firms will struggle with multiple and possibly conflicting standards if the Labor Department moves ahead with its fiduciary proposal, the industry group warns.

This Practice Management article is intended for financial advisors only (registered representatives of broker/dealers or associated persons of Registered Investment Advisors).

The wealth management industry might be headed toward a "compliance nightmare" next year should the Labor Department move ahead with its proposed fiduciary rule, SIFMA warned in its annual state of the industry briefing.

A situation may develop where advisors and firms have to contend with multiple and possibly conflicting regulatory standards, says Ken Bentsen, CEO of the industry trade group. The Labor Department is working on a fiduciary rule with regard to retirement advice, while the SEC is tasked under Dodd-Frank legislation to craft an industry-wide fiduciary rule.

"If the DoL proceeds, you will have at least two standards with regard to retirement accounts. You'll have the SEC and FINRA looking over the shoulder of qualified retirement accounts," Bentsen says.

"You're going to create a compliance nightmare for the firms that will not be, at the end of the day, in the best interest of the customers," he explains. "It'll create cost and confusion. It's unfortunate, and frankly it’s a failure of the public policy marketplace."

SIFMA has been vocal in its opposition to the Labor Department's efforts. Recently, the organization's leaders repeated their preference that the SEC lead the effort to create a fiduciary rule instead of the Labor Department, citing concerns that the department's proposed rule would be unworkable in practice.

Bentsen called upon Congress to get more involved in the process. Some lawmakers, both Democrats and Republicans, have been working on legislation to head off the Labor Department's efforts.

Speaking with regard to a bipartisan proposal, Rep. Phil Roe (R-Tenn.) recently said that Congress’ efforts are geared "to develop a legislative solution that will accomplish what the Department of Labor has failed to do."

In the past, department officials have rebutted criticism that the rule would hinder investor choice, emphasizing the need for a higher standard of care in order to protect clients.

"We have coordinated with the SEC throughout our rulemaking. The department remains willing to continue working with the SEC to ensure that its eventual rule does not place retirement advisers out of compliance with the DoL standard," a spokesman for the department said.

"Multiple agencies already have regulatory and enforcement authority in this area, but Congress intentionally put in place higher standards of conduct for advisers to tax-favored retirement accounts. Consumers should be able to trust that their retirement adviser is working in their best interest. While that isn’t always clear to consumers in today’s marketplace, a goal of our project is to address that problem," the spokesman added.

However, Bentsen says he sees mounting concern among members of Congress that the rule is flawed.

"While none of us can predict the future, I think that given the fact that you have bipartisan members of Congress talking about changing the statute indicates that the department will need to listen to what Congress is telling them," Bentsen says.

SEC

While SIFMA continues to call upon the SEC to take the lead over the Labor Department, the SEC has been slow to actually craft a new rule.

SEC chairwoman Mary Jo White has repeatedly said that she is in favor of such a rule, and has said it for the past several years when speaking at SIFMA's annual conference. But she's also repeatedly declined to provide a timeline for when a rule would be forthcoming.

Fiduciary advocates have been critical of the SEC, saying that the regulator has been sluggish in crafting a new rule.

White, speaking last month at a conference in Washington, said it's "not a short, quick uncomplicated rule making."

When asked about the slowness of the SEC's process, SIFMA's leadership said that action might be forthcoming after two new commissioners join the regulator next year.

"In my own view, one of the reasons it has taken a while for [the SEC] to do this is that it is not easy. You're taking what is a principle and trying to put that into practice. Congress was very clear that it's not enough to just protect investors but also to protect investor choice," Bentsen said. "We think the SEC takes that to heart."

And SIFMA suggests the Labor Department take note.

"While she didn't say it, I think the DoL should take it under advisement," says Andy Blocker, executive vice president of public policy and advocacy.

Fiduciary advocates, meanwhile, have been urging members of Congress to refrain from watering down rules designed to protect investors from abuse, and also encouraging the Labor Department to remain steadfast.

"A final rule, promulgated by DoL, the expert agency required to enforce ERISA, and fully informed through its rulemaking process, is the best solution to actually ensure that advisors are required to serve retirement investors' best interests," Marilyn Mohrman-Gillis, CFP Board’s managing director of public policy and communications, said before a congressional subcommittee.

−−Andrew Welsch