Depending on where you stand, the U.S. Department of Labor’s new package of fiduciary regulations either provide a functional, long-overdue regulatory framework that will help advisors work effectively with American investors as they plan to retire or they are an egregious misstep that increases retiring investors’ vulnerability to costly, conflicted financial advice.

While the securities industry has lobbied and litigated long and hard for more than a decade for the exemptions from the full-on advisor fiduciary duty the new package provides, could all that work evaporate if presumptive Democratic presidential candidate Joe Biden wins November 3? A new UBS survey shows that 55% of wealthy investors and business owners expect the former vice president to prevail.

“I think it’s a tall order but certainly possible based on current polling suggesting a ‘blue wave’ in November,” Duane Thompson, senior policy analyst at Fi 360, told Financial Advisor magazine.
“The fiduciary standard is no longer a backwater issue for regulators and Congress. But I think it would be difficult for a Biden DOL to reinstate the old Obama-era fiduciary rule without help from Congress. The [courts have] pretty much foreclosed on a regulatory play by stating the DOL exceeded its statutory authority under the old fiduciary rule by ignoring the common-law definition of a fiduciary,” Thompson said.

But a Democratic-controlled Congress could tighten the statutory definition of a fiduciary by amending ERISA.  “Then the DOL would have a stronger hand in drafting a more expansive fiduciary definition covering brokers and insurance producers,’ Thompson added.

From the perspective of the broker-dealer industry, however, any changes to DOL rule going forward would undo more than a decade of lobbying.

“No matter the outcome of the election, consistency is critical in ensuring Main Street investors understand the protections afforded to them,” Robin Traxler, senior vice president and deputy general counsel of the Financial Services Institute (FSI), said. The trade group, which represents the independent advisor industry, has been instrumental in litigating to overturn the Obama-era DOL fiduciary rule and in the creation of its replacement.

“Leading up to Reg BI’s effective date, our members have been working to educate their clients about Reg BI, the protections it establishes and its impact on the client’s relationship with their advisor. It is imperative that any new requirements established either by the DOL or the states compliment Reg BI; otherwise, we will end up with a patchwork of conflicting standards that will only cause investor confusion,” Traxler added.

Like Reg BI, the DOL’s rule requires disclosures of conflicts of interest, but does not require advisors to avoid them altogether. In fact, advisors are not required to seek the lowest-cost investment options for their clients because the revised DOL rule argues that choosing investment options on the basis of cost alone without considering other factors might violate its rulemaking.

The revised rule also allows financial advisors to receive many payments that would have been restricted or forbidden by the previous DOL rule, including commissions, 12b-1 fees, trailing commissions, sales loads, mark-ups and mark-downs, and revenue-sharing payments from investment providers or third parties, even within qualified plans and IRAs.

FSI doesn’t even want the comment period on the DOL’s proposed fiduciary exemptions extended beyond 30 days—something critics of the rule have asked for.

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