ORLANDO, Fla. – SIFMA, the industry's leading lobby group, has warned that the Labor Department's proposed fiduciary rule would create a messy regulatory framework, leaving advisors and firms being held to different standards by different regulators.
Now, with the proposal likely to become rule at the end of this month, according to industry insiders, SIFMA CEO Ken Bentsen says that the brokerage industry's other regulators may yet bring order to chaos.
"We've raised this on a number of occasions: the SEC and FINRA will be confronted with these conflicts. They'll have to give the industry guidance on what the standards are. That could well spur the SEC to restore some order to what we think will be a fairly confusing marketplace," Bentsen tells On Wall Street in an exclusive interview at SIFMA's Compliance and Legal Society Annual Seminar.
SEC PREFERENCE
SIFMA and other industry groups have repeatedly said their preference was for the SEC to lead the way on a fiduciary standard.
Under the 2010 Dodd-Frank Act, the SEC was authorized to craft a fiduciary rule, and went as far as to do an analysis of its impact and implementation. Chairwoman Mary Jo White has said on several occasions – including at SIFMA's annual conferences – that a fiduciary rule remains a priority for the regulator. Yet the SEC has made little progress on crafting one, due in part to internal divisions and competing regulatory priorities.
Kevin Carroll, a managing director and associate general counsel at SIFMA, notes that the SEC also currently lacks two commissioners (the Senate has yet to vote on two nominees to replace them).
"That being said, the SEC has done a lot of work [on a fiduciary standard] and we understand that they continue to do a lot of work. And we continue to believe in it. They are the right agency to do it, and it will be a higher standard for the industry – and it won't be limited to just IRAs," Carroll says.
Bentsen says that had the regulator moved on a fiduciary rule before the Labor Department, then the SEC would likely "have established the baseline for the entire securities market, including for retirement accounts."
Meanwhile, SIFMA says its members, which include the nation's largest wealth management firms, such as Ameriprise and Merrill Lynch, are preparing as best they can for the Labor Department's fiduciary rule even though they have not seen a finalized version of it.
"The firms are trying to figure out what they can do now to plan for what are going to be significant changes. So they are looking at new contracts they might have to put in place. New marketing materials. New training for all their current financial advisors. All the operations steps are the biggest concerns," says Lisa Bleier, SIFMA's managing director of Federal Government Relations and associate general counsel.
Bleier and others note that the Labor Department may be flexible on some aspects of the implementation timeline, allowing exceptions for some of the more complicated parts of the rule. It's one of the areas of the rule that Nancy Reich, executive director of advisory services at Ernst & Young, will be looking closely at once the proposal is finalized by the White House's Office of Management and Budget.
"I think there is concern by some in the industry that the implementation timeline, which was eight months under the proposed rule, that that is too narrow, too short a timeframe. There is certainly hope that that timeframe will be an extended timeframe or a rolling timeframe [under the final version of the rule]," Reich says.
Yet even with preparations in place, it will still be quite an undertaking to comply with the Labor Department's rule, Bentsen says. For example, firms will be looking at whether they need to shift accounts to their wrap platform and whether it would be too difficult to implement the best interest contract exemption.
For some firms, it may be necessary to significantly change their business models, particularly if they rely upon variable annuities, which may end up under new scrutiny under the Labor Department's rule.
"The consensus is that it would cost a lot, it'll take a lot of labor time, and it's going to be extremely difficult to implement it within the time frame originally proposed," Bentsen says.
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