SEC, DOL moving in tandem on investment advice rules

Both the Securities and Exchange Commission and the Department of Labor have set a September 2019 deadline for finalizing regulations that will change how advice is given to retail investors and participants in workplace retirement plans.

The SEC’s proposed Regulation Best Interest, which raises broker-dealers’ standard of care to retail investors, a clarifying regulation on registered investment advisors’ obligations to investors, and new disclosure requirements for advice providers are currently under review to account for thousands of comment letters from industry and stakeholders.

Meanwhile, the Labor Department is “considering regulatory options” after its fiduciary rule was vacated in the Fifth Circuit Court of Appeals earlier this year, according to a brief explanation of the agency’s regulatory agenda.

That the agencies have set the same deadline is not a coincidence, explained Brad Campbell, a partner at Drinker Biddle & Reath and former head of Labor’s Employee Benefits Security Administration, in a recent webinar hosted by the firm.

“They are trying to end up in the same place at the same time with complementary regulation,” Campbell said, cautioning that his theory, while hardly far-fetched, is still speculation.

The most sweeping of the SEC’s proposals—Reg BI—addresses the conduct of broker-dealers and dually registered advisors in their handling of retail investment accounts.

Labor’s fiduciary rule amended the Employee Retirement Income Security Act and was limited to advice on qualified retirement plans and rollovers of plan assets to IRAs.

Under its regulatory agenda, Labor lists an item titled “Fiduciary Rule and Prohibited Transaction Exemptions.”

Rather than Labor advancing a new rule comparable in scope to the vacated fiduciary rule, Campbell expects the DOL will craft a “broad-based” class exemption that takes into account the rules finalized by the SEC.

He also thinks Labor may advance regulation that specifically addresses advice on rollovers of retirement plan assets to IRAs. The IRA rollover market, and billions of dollars allegedly lost annually by retirement investors to brokers’ conflicts of interests, was the motivating reason behind the original fiduciary rule.

One potential new prohibited transaction exemption could provide that a broker is compliant with ERISA when he or she advises on rolling over assets to an IRA, so long as the broker is in compliance with SEC’s Reg BI, Campbell suggested.

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