36 INVESTMENT ADVISOR JULY/AUGUST 2020 | ThinkAdvisor.comculminating for years under the banner ofthe fiduciary duty battle. That is, gettingbrokers to adhere to the same fiduciarystandard as investment advisors. ManySEC chairs have taken up the mantle— during my time covering the agency:Christopher Cox, Mary Schapiro, MaryJo White — but political differences within the agency and on Capitol Hill torpedoed efforts to issuing a “fiduciary” rule.
Needless to say that scores of lawmakers have also had their hands in thefiduciary rulemaking pie.
Clayton, however, made
addressing the fiduciary
issue — and eventually passing
a “best-interest” rule — his top
priority. He was able to wran-
gle a 3-1 vote to pass the four
prongs of the advice-standards
package — Reg BI, the Form
CRS Relationship Summary,
the Standard of Conduct for
Investment Advisers, and a
new Interpretation of “Solely
Former SEC Commissioner
Robert Jackson, a Democrat,
who left the agency on Feb. 14, dissented
on all parts. The White House is expect-
ed to nominate Caroline Crenshaw, an
attorney at the SEC, to fill Jackson’s seat
In early June, the White House sentHester Peirce’s nomination to be reappointed as an SEC commissioner to theSenate. Peirce, a Republican, was swornin on Jan. 11, 2018. If confirmed by theSenate, her second term would expire onJune 5, 2025.
In stating that the agency would notextend the June 30 compliance date,Clayton said the regulator believes firmswith account relationships comprising“a substantial majority of retail investorassets have made considerable progress”in adjusting their business practices, supplementing and modifying their policiesand procedures, and otherwise aligningtheir operations and preparing for compliance with Reg BI and Form CRS.
Based on the securities regulator’s
COMPLIANCE TRIP UPS
engagement over the past 10 months with
the industry “and because the continued
implementation of these conduct and
transparency initiatives, individually and
collectively, will significantly benefit Main
Street investors — we believe that the June
30, 2020, compliance date for Reg BI and
other requirements, including the require-
ment to file and begin delivering Form
CRS, remains appropriate,” Clayton said.
Duane Thompson, senior policy analystat Fi360, told me in mid-June that whilebrokerage firms and reps “are as ready asthey’re going to be” to comply with RegBI, “it’s going to be a learning curve.”
While the SEC’s exam division is willing to work with firms unless an egregiousviolation is found, “there are ways you canget tripped up on” Reg BI and Form CRScompliance, namely when it comes to disclosure and conflicts, fees and expensesrelated to Form CRS, Thompson said.
DOL RULE TO ALIGN WITH REG BI
The Labor Department sent its fiduciary rule to align with the Reg BI to theOffice of Management and Budget forreview on June 2.
Preston Rutledge, assistant secretary of Labor for the Employee BenefitsSecurity Administration, who wascharged with spearheading a new fiduciary rule to align with Reg BI, managedto get the rule to OMB before leaving hispost at the end of May.
Fred Reish, partner at Faegre Drinker
FINRA TWEAKS RULES TO
Biddle & Reath in Los Angeles, said that
word on the street is that the Labor rule
“is primarily a prohibited transaction
exemption intended to replace the Best
Interest Contract Exemption, which
was vacated by the 5th Circuit Court
of Appeals, and the temporary non-
enforcement policy that provided relief
in light of the BICE being vacated.”
Reish also has heard that “the fiduciary
regulation may be modified to more clear-
ly apply to advisors who are not covered
by the SEC’s Regulation Best Interest or
the RIA fiduciary standard. It’s not clear
how that will be done or what
other changes will be made to
the ERISA fiduciary definition.”
ALIGN WITH REG BI
The Financial IndustryRegulatory Authority, meanwhile, took further steps inmid-June to align its rule withReg BI by adding two new“problem codes” when reporting customer complaints related to Reg BI and Form CRS.
Starting on July 18, firmswill be able to use Problem Code 16–Reg BI and new Problem Code 17–FormCRS, when applicable, to report customer complaint information and requireddocuments filed under Rules 4530(f)and (g), FINRA explains in RegulatoryNotice 20-17.
FINRA says that the regulator also isretiring Rule 4530 Problem Code 69–DOL Fiduciary Rule and making othernon-substantive stylistic changes to theproblem codes.
Firms should use Problem Code 16–Reg BI when a reportable matter involvesallegations concerning possible violationsof Reg BI. “This encompasses allegations that recommendations of securities or investment strategies involvingsecurities, including recommendationsof account type, made to retail customerswere not in the best interest of the retailcustomer,” FINRA states.
Washington Bureau Chief Melanie Waddell canbe reached at email@example.com.
“By waiving early withdrawal
penalties and other limitations
tied to retirement accounts,
Congress provided investors with
substantial flexibility to access
these plans in order to weather
financial hardships related to
the pandemic,” Clayton said.