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SEC – State – DOL Fiduciary Rule – Solving Regulatory Ambiguity

By Cory Roberson, Principal at RIA Review and RIA Consults

Advisors,

Many firms might be confused about the applicability of the Department of Labor (DOL) Fiduciary Rule over the entire securities industry.  Over the last eight months, we’ve seen a rule passing, several lawmaker appeals, compliance date changes, a district court overruling, and now SEC involvement on the issue.  As such, applying regulatory compliance leaves most scratching their heads.


The implication of this rule is a controversial matter.  In a multi-jurisdictional climate, the DOL’s rule was construed as overreaching by many industry participants.  In a likely countermove to regulatory overreach, the Securities & Exchange Commission (SEC) is weighing in with its own fiduciary rule proposal.  Many states may also weigh in with its adaptations to the future SEC version as well.

Timeline of Fiduciary Rule events:

8/31/2017 - DOL proposes to extend the special transition period for key sections of the BIC Exemption and the Principal Transactions Exemption from 1/1/2018, to 7/1/2019*. 

11/29/2017 - DOL approves applicability date to 7/1/2019.

3/15/2018 -  The United States Court of Appeals for the Fifth Circuit elected, in a 2-1 decision, to vacate the Department of Labor’s (DOL’s) Fiduciary Rule.

3/19/2018 -  During a Securities Industry and Financial Markets Association (SIFMA) meeting, SEC Chair Jay Clayton expresses the agency’s intent to move forward with its own standards for monitoring recommendations of investment advisor/broker-dealers.

If approved by congressional legislature H.R. 3857 of PASS Act of 2017, the SEC “Best Interest Standard” would direct the commission to create a uniform best-interest standard under the exchange act for broker-dealers first, and then likely onto investment advisors. 

4/18/2018 - SEC Public meeting on Best Interest Standard for Fiduciaries at 3:30 pm (eastern)https://www.sec.gov/news/openmeetings/2018/ssamtg041818.htm

Overall Suitability Procedures

Making suitable investment recommendations is an important procedural requirement for fiduciaries and non-fiduciaries.

SEC Rule 204, 205, 206, and OCIE Examination Priorities.  Generally, the SEC requires an investment adviser to ensure that its investment advice given is suitable for the client when taking into consideration their financial history, investment experience, risk tolerance, and other investment objectives.  Advisors can be expected to demonstrate proper suitability procedures during an examination (e.g. investment policy statement).

FINRA Rule 2111 (“Suitability”). Generally, a suitability questionnaire/assessment includes the following items: Client Age, Investments, Financial Situation/Needs, Tax Status, Investment Objectives, Investment Experience, Time Horizon, Liquidity, and Risk Tolerance.

DOL “Impartial Conduct Standards for fiduciaries can including the following: (1) Make recommendations that are in their client's best interest, (2) Charging no more than reasonable compensation for services, and (3) Avoiding misleading statements.


Our Mission: “Serving the Investment Community to Make a Social Impact”

Cory Roberson is Principal of RIA Review, a compliance and document management portal (www.riareview.com) - 120+ users and growing.  He is also Principal of RIA Consults -Roberson Consults Group), a consulting firm providing compliance, operations, and business development services for registered investment advisors and next-gen fintech entrepreneurs (www.riaconsults.com) more than 160 SEC & State advisors clients across the US (including a few in Europe).  His third platform, RegTech Review, a FinTech compliance portal site: (http://regtechreview.com) is currently in prototype stage.   

As a social entrepreneur, through his mission-driven arm SoCap Missions (http://SoCapmissions.com), he provides business support group sessions and has volunteered for more than 15 youth programs in locations such as S. Korea, China, S. Africa, Thailand, and India.

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