FSI celebrates death of DOL fiduciary rule, praises SEC advice rule

Cracked concrete wall with rule word on and blue sky outside

General counsel David Bellaire predicts final broker standard in 2019, but not Form CRS.

Leaders of the Financial Services Institute danced on the grave of the Labor Department’s fiduciary rule Tuesday while voicing support for the Securities and Exchange Commission’s advice reform proposal.

FSI president and CEO Dale Brown said a decision earlier this year by the 5th Circuit Court of Appeals was “an important victory for Main Street investors.”

When that line from his remarks at the FSI Forum in Salt Lake City didn’t draw a reaction, he said, “Did I mention we won the lawsuit?” At that point, there was applause from the approximately 200 independent broker-dealers and financial advisers in attendance.

The organization was one of several financial industry opponents of the DOL measure who were the plaintiffs in a suit that lost decisively in a Dallas federal court in 2017. But the 5th Circuit overturned that ruling with a split vote of a three-person panel and vacated the regulation in March.

The participation of FSI in the court battle was a breakthrough for the lobbying group, according to FSI executive vice president and general counsel David Bellaire.

“We beat an agency of the U.S. government in federal court and overthrew a rule we knew would do tremendous damage to people trying to plan for retirement,” Mr. Bellaire said on a conference panel. “Our profile was raised by that effort.”

Proponents of the DOL rule, which required brokers to act in the best interests of their clients in retirement accounts, said it would mitigate broker conflicts of interest. Industry critics said the measure was too costly and burdensome.

Parties on both sides of the DOL regulation have switched on the SEC’s advice proposal. Those who fought the DOL rule support the SEC’s reform recommendation, while those who supported the DOL effort assert that the SEC is continuing the status quo for brokers rather than strengthening their standard of care.

The centerpiece of the SEC proposal is a so-called Regulation Best Interest that requires brokers to emphasize their clients’ returns over their own compensation.

“We want the SEC to know that in large part we think they got it right, and it’s really about doing a little tinkering to improve a very good proposal,” Mr. Bellaire said.

He predicted the SEC would issue a final rule on a broker standard next year, but would put off acting on another part of the proposal: disclosure requirements meant to distinguish brokers and investment advisers, known as the customer relationship summary form, or Form CRS.

“Form CRS and other aspects of the package may be left for another day,” Mr. Bellaire said. “There’s probably more work to be done there.”

Last week, SEC chairman Jay Clayton declined to set a deadline for a final rule.

As the SEC continues its work, Mr. Bellaire anticipates that fiduciary bills will be proposed at the state level because legislators can use the topic to appeal to retirement savers.

“It’s an easily described issue on a bumper sticker,” Mr. Bellaire said. “The defense to explain why a state approach doesn’t make sense might take a page-and-a-half to explain. That’s a real challenge there.”