Fiduciary advocates fortified the case for the regulation on the eve of President-elect Trump's inauguration, a signal that they are prepared for a prolonged fight over the rule's fate.
The future of the Department of Labor's regulation, which begins implementation April 10, is somewhat uncertain. Several groups, including the U.S. Chamber of Commerce and SIFMA, filed a lawsuit in federal court in Texas that seeks to overturn the rule. A judge is expected to make a decision in the case soon.
And while Trump has not spoken out on this specific rule, he has expressed his desire for a sweeping regulatory rollback. Plus, key advisers to the president-elect, such as soon-to-be former hedge fund magnate Anthony Scaramucci, have called for the rule to be overturned.
"The election clearly reenergized those who are fighting to kill the rule. It energized us accordingly to defend the rule," says Barbara Roper, director of investor protection at the Consumer Federation of America, a consumer advocacy group.
"There is an added sense of urgency now," she adds.
-
The new administration will have two paths it can take to stop the regulation from being implemented.
November 30 -
Will Chief District Judge Barbara Lynn be the first to rule against the regulation? Opponents of a case in Texas federal court have high hopes.
December 16 -
With a deep résumé representing Wall Street firms, Jay Clayton is seen as a business-friendly choice not expected to push major new regulations or ramp up RIA exams.
January 4
In a report issued this week, the federation says the need for the rule is clear when one looks at differences in claims the industry is making in the lawsuit and how firms advertise their brokers to clients.
Industry trade associations maintain that their brokers are in fact salespeople who do function as advisers and should not be regulated as such, the authors say. But these same firms often frame their registered reps as advisers.
It's a "legal farce," say the report's authors, Roper and her colleague Micah Hauptman, financial services counsel at the Consumer Federation of America.
'PERSONAL, HIGH-QUALITY ADVICE'
In their lawsuit, the plaintiffs argue that, "The recommendations covered by the [r]ule include many that have never been understood to entail fiduciary duties, such as whether to purchase an investment product, or offering a simple comparison between a firm’s own proprietary products."
Roper and Hauptman looked at the websites of 25 firms, all of whom are members of trade associations currently fighting the regulation in court, according to their report.
"Not once did we find on any of these firms' websites any prominent reference that described their services as providing arm's length investment sales recommendations," the authors write.
"There is an added sense of urgency now," says Barbara Roper, director of investor protection at the Consumer Federation of America.
Of Wells Fargo Advisers, the authors note the firm's website tells prospective and current clients that its advisers "provide advice and guidance to help maximize all elements of your financial life, whenever and however you need it."
Ameriprise, in its 44-page client relationship guide, says its advisers "provide personal, high-quality advice."
Both firms, which did not respond to requests for comment, are members of SIFMA.
From recommending wrong share classes to cherry-picking allocations, these are the pitfalls advisers should avoid.
Roper says that brokers may in fact be acting in their clients' best interest. "But the lawsuit is then a fiction," she says.
The trade group and other the plaintiffs are seeking to overturn the regulation on grounds that the Labor Department overstepped its authority and is infringing on its members free speech, among other charges.
In a statement, SIFMA said that the SEC, not the Labor Department, is the right agency to create a regulatory standard to protect retail investors.
"SIFMA has long supported a best interest standard for broker-dealers across all retail investment accounts, not just retirement accounts. None of the arguments made in our meritorious lawsuit against the DoL suggest otherwise," CEO Ken Bentsen said in a statement.
Roper says that even if the rule is delayed or overturned by the incoming Trump administration, fiduciary advocates won't give up the fight.
"Let's say they succeed and they kill the DoL rule. One of the things that has come out of this is a real increased awareness among investors of the importance of a fiduciary duty. We will work to ensure that investors can tell the difference between a real fiduciary adviser and a salesperson masquerading as an adviser," she says.
