The Securities Industry and Financial Markets Association had some positive comments about the DOL’s fiduciary rule Friday, but remains concerned that advisors won’t be able to discuss specific investments with prospective clients.
 
On another issue -- a possible legal challenge to the rule -- SIFMA CEO Ken Bentsen said it was “premature” to discuss that option.
 
“We haven’t had any discussions about that since the [final] rule” came out, Bentsen said on a call with reporters Friday.  “We’re trying to understand what’s in the rule right now.”
 
SIFMA officials applauded several changes the department made to its final rule, namely, the elimination of the legal list of assets permissible for IRAs under the best-interests contract (BIC) exemption, the removal of fiduciary coverage for those providing valuation and fairness opinions to IRAs and plans, and the delay in the applicable date.
 
(The BIC exemption allows advisors to use commissioned products in IRAs.)
 
But the influential trade group is concerned that advisors will not be able to make specific recommendations to prospective IRA clients in the absence of a best-interests contract.
 
“You’re still only able to give somebody general asset allocation [advice], but you’re not able to tell them what their specific investment options are,” said Lisa Bleier, SIFMA associate general counsel.
 
The rule allows advisors to provide investment education and general communication to IRA owners without being deemed a fiduciary and coming under the best-interests standard. Fiduciary liability arises once “an individual adviser goes beyond providing education and gives investment advice in a particular case,” the DOL says in its explanation of the rule.
 
However, the rule does make provisions for investment discussions with non-clients.
 
The best-interests contract can cover advice “rendered prior to execution of the contract as long as the contract is entered into prior to or at the same time as the execution of the recommended transaction,” the DOL says.
 
Further, the rule allows reliance on the best-interests exemption even if a prospect never opens an account -- as long as firms and advisors have complied with the rule’s fiduciary standards in discussing investments, the DOL says.
 
Under the rule, new clients must agree to the contract with a written or electronic signature, while a negative consent form can be used for existing customers.