What in the wide, wild world of fiduciary is going on here?

What in the wide, wild world of fiduciary is going on here?

Skip Schweiss | February 6, 2019

Investment advisers (and others) often ask me about the status of various policy proceedings around standards of care for investors. This seems to be a constant – and slowly moving – target, so here's the latest roundup.

Department of Labor

Last spring, a court gave last rites to the DOL's Conflict of Interest Rule. The rule would have applied a fiduciary standard of care to advice given to all retirement accounts, including IRAs. Essentially, the DOL was attempting to extend the protections of the Employee Retirement & Income Security Act (ERISA) to individual retirement accounts, including to rollover advice. It was first proposed in 2010, the year the first Baby Boomers turned 64 years old…no coincidence on the timing there.

The rule had many opponents, and was ultimately taken down. But in the eight years from germination to termination, it shined a bright spotlight on standards of care for investors, significantly enhancing the visibility of this issue in the public eye. Many opponents argued for the SEC to take up the case so that a rule would apply more consistently across all investment accounts, not just retirement accounts.

Stay tuned: The DOL has announced that it will take another swing at a fiduciary standard this year.

Securities & Exchange Commission

Not long before the court struck down the DOL rule, the SEC proposed its own “Regulation Best Interest," consisting of three parts: 


    Application of a “best interest" standard to brokers when providing investment advice (not a fiduciary-level rule)


    Clarifying the Investment Advisers Act of 1940, and asking commenters to weigh in on whether RIAs should be subject to:
    •  Minimum capital requirements and fidelity bonding, like broker
    •  Licensing and continuing education requirements, like brokers


    Mandatory issuance of client statements, showing fees

The SEC's comment period ended last fall, and it they're now reviewing comments with an eye toward finalizing the rule sometime in, I would guess, the second half of 2019. The next guess would put an effective date for the rule around January 1, 2020. We'll keep you posted, of course.


One result of all the attention the DOL's rule process brought to the issue of standards is that a few states are now moving forward with their own proposals. The states furthest down that path are (in alphabetical order):

Maryland, where a state lawmaker has announced intentions to push legislation in 2019 raising standards of care there.

Nevada had previously passed a law requiring financial planners be held to a fiduciary standard. In 2017, it extended the definition of financial planners to include securities brokers and investment advisers. The legislature left it to the Nevada Securities Division to write the regulations implementing the law. A proposed set of regulations was issued in January 2019, with a March 1 deadline for comments. Find the proposed regulation, including links to provide comments, here: https://www.nvsos.gov/sos/home/showdocument?id=6156

New Jersey released a “pre-proposal" in October 2018 proposing that broker-dealers and investment advisers be subject to a uniform fiduciary standard. Next up is a more formal proposal from the New Jersey Bureau of Securities. You'll see the document here:https://www.njconsumeraffairs.gov/Proposals/Pages/bos-10152018-proposal.aspx

The state of New York passed a rule last year mandating a best interest standard of care for insurance and annuity sales. One state lawmaker has announced his intention to extend that to securities recommendations in the 2019 legislative session.

Certified Financial Planner (CFP®) Board of Standards

In 2007, the CFP Board finalized a rule applying a fiduciary standard to all CFP® certificants when developing and delivering a financial plan. Amidst all the government wrangling about standards of care, in 2018 it extended that fiduciary standard to the advice component of the relationship, effective October 1, 2019.

As you can see, there's a lot of activity in this arena, though it's all moving slowly. But one thing seems clear: The trend is toward higher standards of care for investors. And that would seem to benefit investment advisers, who have been required to put investors' interests first since 1940.

Stop by to learn more about the trends

Join us at National LINC in San Diego on February 8th for our “Pancakes and Policy" session, where we'll report on these issues and more with Neil Simon, head of government relations at the Investment Adviser Association. And if you stop by our booth any time, you'll have a chance to learn more about the issues and how together we can take action.

See you there!