Fiduciary Standard - Now open for public comments

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Fiduciary Standard - Now open for public comments

Post by LadyGeek » Sun Apr 19, 2015 3:33 pm

The proposed Fiduciary Standard legislation will be open for public comments on 4/20/2015, but the website is up and running now. The site owner, Alex Frakt, is now permitting comments in the forum[, pursuant to our exception to the general rule against discussing legislative proposals: "Proposed regulations that are directly related to investing may be discussed if and when they are published for public comments."]

Here's the direct link from the Federal Register: Definition of the Term “Fiduciary”; Conflict of Interest Rule-Retirement Investment Advice

Comments Close: 07/06/2015

- PART 2509—INTERPRETIVE BULLETINS RELATING TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974

- PART 2510—DEFINITION OF TERMS USED IN SUBCHAPTERS C, D, E, F, G, AND L OF THIS CHAPTER

For those unfamiliar with the above, see: Protect Your Savings — U.S. Department of Labor

Please keep all comments in this thread.

[comments in brackets added by admin alex]
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Re: Fiduciary Standard - Now open for public comments

Post by Barry Barnitz » Sun Apr 19, 2015 3:48 pm

Hi:

Here is the Department of Labor page: Conflicts of Interest Proposed Rule

Unlike the U.K. and Australia, which banned commission-based compensation schemes for advisors , the Labor proposal retains this compensation structure. From the FAQ's:
The Department also considered banning all payments to fiduciary advisers that create conflicts of interest, such as commissions and revenue sharing. This is the general approach taken in the prohibited transaction rules in ERISA and the Internal Revenue Code, though both allow the Department to create exemptions from these prohibitions. The United Kingdom and other countries have adopted this approach recently. The UK banned all financial advisers from taking commissions, to ensure that advisers simply would have no conflicting interest to pursue. However, the Department believes the more-tailored approach reflected in its proposal can significantly reduce the harms created by conflicts of interest, while continuing to allow for common forms of compensation.
Larry Swedroe's commentary on fiduciary standards : Swedroe: UK Exceeds US In Common Sense | ETF.com
Question: What exemptions is the Department proposing from the prohibited transaction rules?

As noted above, ERISA and the Internal Revenue Code protect plan participants and IRA owners by imposing fundamental duties on persons called "fiduciaries" Fiduciaries to plan sponsors and plan participants are required to act impartially and provide advice that is in their clients "best interest". In addition, fiduciaries to plan sponsors, plan participants, and IRA owners are not permitted to receive payments creating conflicts of interest without a prohibited transaction exemption (PTE).

Drawing on comments received and in order to minimize compliance costs, the proposed rule creates a new type of PTE that is broad, principles-based and adaptable to changing business practices. This new approach contrasts with existing PTEs, which tend to be limited to much narrower categories of specific transactions under more prescriptive and less flexible conditions.

Specifically, the "best interest contract exemption" allows firms to continue to set their own compensation practices so long as they, among other things, commit to putting their client's best interest first and disclose any conflicts that may prevent them from doing so. Common forms of compensation, such as commissions, revenue sharing and 12b-1 fees, are permitted under this exemption, whether paid by the client or a third party such as a mutual fund. This exemption is available to advisers to IRA savers, individual plan participants, and small plans. To qualify for the new "best interest contract exemption," the firm and individual adviser providing retirement investment advice must enter into a contract with its clients that:

Commits the firm and the individual adviser to providing advice in the client's best interest. Committing to a best interest standard requires the adviser and the company to act with the care, skill, prudence, and diligence that a prudent person would exercise based on the current circumstances. In addition, both the firm and the adviser must avoid misleading statements about fees and conflicts of interest.
Warrants that the firm has adopted policies and procedures designed to mitigate conflicts of interest. Specifically, the firm must warrant that it has identified material conflicts of interest and compensation structures that would encourage individual advisers to make recommendations that are not in clients' best interests and has adopted measures to mitigate any harmful impact on savers from those conflicts of interest. Under the exemption, advisers will be able to continue receiving common types of compensation as long as the adviser adheres to the exemption's consumer-protective conditions.
Clearly and prominently discloses any conflicts of interest, like backdoor payments or hidden fees often buried in fine print, that might prevent the adviser from providing advice in the client's best interest. The contract must also direct the customer to a webpage disclosing the compensation arrangements entered into by the adviser and firm and make customers aware of their right to complete information on the fees charged.

In addition to this new best interest contract exemption, the proposed regulatory package revises many existing exemptions. It also includes a new exemption for principal transactions, which allows advisers to recommend certain fixed-income securities and sell them to the customer directly from the adviser's own inventory, as long as the adviser adheres to the exemption's consumer-protective conditions.

The proposal also asks for comment on whether the final package should include a new streamlined "low-fee exemption" that would allow firms to accept payments that might otherwise be deemed "conflicted" when recommending the lowest-fee products in a given product class.
Last edited by Barry Barnitz on Sun Apr 19, 2015 4:03 pm, edited 2 times in total.
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Re: Fiduciary Standard - Now open for public comments

Post by Barry Barnitz » Sun Apr 19, 2015 3:57 pm

Hi:

News article: In Labor Department's fiduciary proposal, a nod to passive investing
Buried in the voluminous, 444-page proposal, sent out for public comment this week, is a caveat that could make it easier for broker-dealers to meet their requirements under the law if they sell low-cost index funds.

“Facilitating investments in such high-quality, low-fee products would be consistent with the prevailing (though by no means universal) view in the academic literature that posits that the optimal investment strategy is often to buy and hold a diversified portfolio of assets calibrated to track the overall performance of financial markets,” according to the proposal.

The agency offers, as an example of a high-quality investment for long-term investors, a low-cost, index-tracking target-date fund “consistent with the investor's future risk appetite trajectory.”

For a shorter time period of five to 10 years, the Labor Department said a “risk-matched balanced fund or combination of funds” was an example of a recommendation also “likely to be sound” from that “prevailing” point of view.

"We plan for this low fee streamlined exemption to move forward with the rest of the proposal, and, if it can be worked out, adopted as part of the final exemptions," the agency said in an emailed statement. "An important part of this whole process is getting constructive public feedback and this includes how best to operationalize this exemption. We have been talking with various stakeholders on this and other issues and look forward to receiving formal comments when the proposal opens for public comment" on April 20.
regards,
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Re: Fiduciary Standard - Now open for public comments

Post by denovo » Sun Apr 19, 2015 4:22 pm

This is definitely progress.
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Re: Fiduciary Standard - Now open for public comments

Post by Leeraar » Sun Apr 19, 2015 5:57 pm

Really?

As I read it, this only applies to retirement accounts, maybe.

What about those with regular taxable investment accounts? IMO, that's where the real problem is.

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Re: Fiduciary Standard - Now open for public comments

Post by trueblueky » Sun Apr 19, 2015 6:41 pm

Leeraar wrote:Really?

As I read it, this only applies to retirement accounts, maybe.

What about those with regular taxable investment accounts? IMO, that's where the real problem is.

L.
The Labor Department has no jurisdiction over regular accounts -- that's SEC, and possibly Treasury. Labor has jurisdiction over retirement plans. Kudos to them for this initiative.

I understand SEC is considering similar rules for other accounts. They're starting out behind, so I don't expect their draft rules immediately.

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Re: Fiduciary Standard - Now open for public comments

Post by ResearchMed » Sun Apr 19, 2015 6:56 pm

trueblueky wrote:
Leeraar wrote:Really?

As I read it, this only applies to retirement accounts, maybe.

What about those with regular taxable investment accounts? IMO, that's where the real problem is.

L.
The Labor Department has no jurisdiction over regular accounts -- that's SEC, and possibly Treasury. Labor has jurisdiction over retirement plans. Kudos to them for this initiative.

I understand SEC is considering similar rules for other accounts. They're starting out behind, so I don't expect their draft rules immediately.
Many of the practices shouldn't be allowed at all, for any accounts.

But IMHO, it's far worse with "captive" accounts like 403b/401k, where the employee doesn't usually have the option of other choices (funds, ER's, additional "fees", etc.).
Then the choice would be IRA and nothing else but taxable, if they don't like the employer plans.

It's still a huge problem that it isn't at all clear in many cases that the "broker/agent" is really a "sales rep" and not at all what one might think (meaning more like fiduciary).
And many of the fees are well hidden, also not okay.

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Proposed fiduciary rule for IRAs

Post by OakPhilliesFan » Thu Apr 23, 2015 10:05 pm

[Thread merged into here, see below. --admin LadyGeek]

Not sure if this has been discussed here yet. I am no policy expert but this seems like a change most Bogleheads would welcome (assuming it's actually effective): http://www.economist.com/news/finance-a ... ler_beware

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Re: Proposed fiduciary rule for IRAs

Post by Beat The Street » Thu Apr 23, 2015 10:19 pm

And here is what the brokerage execs think....http://advisorhubinc.com/morgan-stanley ... rd-happen/
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Re: Fiduciary Standard - Now open for public comments

Post by LadyGeek » Thu Apr 23, 2015 11:02 pm

I merged Dave81's thread into here.
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Re: Fiduciary Standard - Now open for public comments

Post by OakPhilliesFan » Fri Apr 24, 2015 2:00 am

LadyGeek wrote:I merged Dave81's thread into here.
Thanks. I only realized later I was possibly violating the forum rules. I'm pretty new here so still learning what goes where, what's permissible, etc.

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Re: Fiduciary Standard - Now open for public comments

Post by sawhorse » Fri Apr 24, 2015 1:18 pm

It is [(removed) --admin LadyGeek] ridiculous that this is even a debate.

I understand that the specific details are complicated, and I'm uneasy with the idea of advisors being sued for poor results that they could not have foreseen.

But an argument over the basic idea that financial advisors should be required to act in their clients' best interest? That's a no-brainer.

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Re: Fiduciary Standard - Now open for public comments

Post by sawhorse » Fri Apr 24, 2015 1:24 pm

Leeraar wrote: As I read it, this only applies to retirement accounts, maybe.
I was under the impression that retirement plans, at least employer ones, already have fiduciary requirements. Is this not the case?

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Re: Fiduciary Standard - Now open for public comments

Post by Leeraar » Sun May 03, 2015 7:08 pm

An interesting column from jason Zweig:

http://blogs.wsj.com/moneybeat/2015/04/ ... t-forever/

If you find a paywall, search Google for:

"The Day Wall Street Changed"

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Re: Fiduciary Standard - Now open for public comments

Post by sawhorse » Sun May 03, 2015 7:37 pm

Leeraar wrote:An interesting column from jason Zweig:

http://blogs.wsj.com/moneybeat/2015/04/ ... t-forever/

If you find a paywall, search Google for:

"The Day Wall Street Changed"

L.
I did a search and didn't find anything. Can someone summarize the article?

Jack Bogle is a strong supporter of a fiduciary standard law:
http://www.marketwatch.com/story/john-b ... 2015-02-26

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Re: Fiduciary Standard - Now open for public comments

Post by Leeraar » Sun May 03, 2015 11:37 pm

sawhorse wrote:
Leeraar wrote:An interesting column from jason Zweig:

http://blogs.wsj.com/moneybeat/2015/04/ ... t-forever/

If you find a paywall, search Google for:

"The Day Wall Street Changed"

L.
I did a search and didn't find anything. Can someone summarize the article?

Jack Bogle is a strong supporter of a fiduciary standard law:
http://www.marketwatch.com/story/john-b ... 2015-02-26
Search Google on the phrase with the quotes, including the quotes.
On May Day 1975, fixed-rate commissions were abolished by regulators. Until then, a broker who tried to charge customers less than the fixed rate to trade shares ran the risk of being expelled from the stock exchange. With some minor exceptions, for 183 years it had cost the same amount per share to trade 100 shares as it did to trade 1,000 or 100,000—and brokers regularly shaved 2% or more for themselves off the typical trade.

...

Fast-forward to 2015, when much of the brokerage industry vehemently opposes the idea that brokers should be required to put their clients’ interests ahead of their own.

If such a “fiduciary duty” became standard practice, would it—as many brokers argue—bring disaster by making financial advice too expensive for the masses? Or would it instead encourage more consumers than ever to seek advice, now that they could finally be assured that it would be in their best interest to do so?

Those who oppose the extension of fiduciary duty should look back at May Day and ask whether they are on the right side of history.
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Re: Fiduciary Standard - Now open for public comments

Post by ps56k » Sun May 03, 2015 11:38 pm

trueblueky wrote:As I read it, this only applies to retirement accounts, maybe.
What about those with regular taxable investment accounts?
IMO, that's where the real problem is.

The Labor Department has no jurisdiction over regular accounts -- that's SEC, and possibly Treasury.
Labor has jurisdiction over retirement plans. Kudos to them for this initiative.
I understand SEC is considering similar rules for other accounts.
They're starting out behind, so I don't expect their draft rules immediately.
Yikes - the stuff you learn around here...
that forces you to go validate the comments and learn more...

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Re: Fiduciary Standard - Now open for public comments

Post by Leeraar » Mon May 04, 2015 1:35 am

Jason Zweig:
If such a “fiduciary duty” became standard practice, would it—as many brokers argue—bring disaster by making financial advice too expensive for the masses?
I am resisting all my cynical and sarcastic comments on the good, inexpensive advice currently being delivered.

L.
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Re: Fiduciary Standard - Now open for public comments

Post by Leeraar » Mon May 04, 2015 1:47 am

Barry Barnitz wrote:Hi:

News article: In Labor Department's fiduciary proposal, a nod to passive investing
Buried in the voluminous, 444-page proposal, sent out for public comment this week, is a caveat that could make it easier for broker-dealers to meet their requirements under the law if they sell low-cost index funds.

“Facilitating investments in such high-quality, low-fee products would be consistent with the prevailing (though by no means universal) view in the academic literature that posits that the optimal investment strategy is often to buy and hold a diversified portfolio of assets calibrated to track the overall performance of financial markets,” according to the proposal.

The agency offers, as an example of a high-quality investment for long-term investors, a low-cost, index-tracking target-date fund “consistent with the investor's future risk appetite trajectory.”

For a shorter time period of five to 10 years, the Labor Department said a “risk-matched balanced fund or combination of funds” was an example of a recommendation also “likely to be sound” from that “prevailing” point of view.

"We plan for this low fee streamlined exemption to move forward with the rest of the proposal, and, if it can be worked out, adopted as part of the final exemptions," the agency said in an emailed statement. "An important part of this whole process is getting constructive public feedback and this includes how best to operationalize this exemption. We have been talking with various stakeholders on this and other issues and look forward to receiving formal comments when the proposal opens for public comment" on April 20.
regards,
Barry,

This seems to me to be a bad idea. It could be a gaping loophole, or even an opportunity for more bureaucratic regulation.

L.
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Re: Fiduciary Standard - Now open for public comments

Post by yaychemistry » Mon May 04, 2015 7:42 am

Leeraar wrote:Jason Zweig:
If such a “fiduciary duty” became standard practice, would it—as many brokers argue—bring disaster by making financial advice too expensive for the masses?
I am resisting all my cynical and sarcastic comments on the good, inexpensive advice currently being delivered.

L.
The quote you have posted makes it seem to me as if Jason Zweig is against a fiduciary duty. However, the full quote of Jason Zweig is (emphasis mine):
If such a “fiduciary duty” became standard practice, would it—as many brokers argue—bring disaster by making financial advice too expensive for the masses? Or would it instead encourage more consumers than ever to seek advice, now that they could finally be assured that it would be in their best interest to do so?

Those who oppose the extension of fiduciary duty should look back at May Day and ask whether they are on the right side of history.
If you read the whole article, it argues that changes to regulation that are pro-consumer tend to benefit everyone (including the very brokers/advisors that are against such changes).

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Re: Fiduciary Standard - Now open for public comments

Post by Barry Barnitz » Mon May 04, 2015 3:14 pm

Hi:

The Securities Industry and Financial Markets Association (SIFMA) is a United States industry trade group representing securities firms, banks, and asset management companies. SIFMA has submitted a letter "to the U.S. Department of Labor (DOL) requesting an 45-day extension to comment on Conflict of Interest Rule and Related Exemptions to allow for sufficient time to carefully analyze and understand the practical implications of the proposal."

Link:SIFMA with Other Associations Submit Letter to the U.S. Department of Labor for an Extension to Comment on Conflict of Interest Rule. The document can be downloaded as a pdf. file.

SIFMA signed the letter along with the following institutions:
  • The American Bankers Association (ABA),
    American Council of Life Insurers (ACLI),
    American Retirement Association,
    Association for Advanced Life Underwriting (AALU),
    Bond Dealers of America (BDA),
    Financial Services Institute (FSI),
    Financial Services Roundtable (FSR),
    Investment Company Institute (ICI),
    Investment Program Association (IPA),
    Insured Retirement Institute (IRI),
    National Association for Fixed Income Annuities (NAFA),
    National Association of Insurance and Financial Advisors (NAIFA),
    The National Association of Real Estate Investment Trusts (NAREIT),
    The Real Estate Roundtable,
    U.S. Chamber of Commerce
regards,
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Re: Fiduciary Standard - Now open for public comments

Post by Tanelorn » Sat Mar 05, 2016 11:37 am

Here's an article that discusses possible overreach of the proposed fiduciary standard law to cover even offering free personal financial advice.

http://www.forbes.com/sites/johnberlau/ ... ve-ramsey/
“Under the proposed regulation, investment advice from a radio host to a caller regarding the caller’s own investment issues would appear to be fiduciary advice if the advice addresses specific investments,” Mason said in an email. It doesn’t matter that Ramsey and other hosts aren’t compensated by listeners, he adds, as the DOL rule explicitly covers those who give investment advice and receive compensation “from any source.” Mason agrees with Markey that the compensation Ramsey receives from radio stations that carry his show and from book sales are enough to define Ramsey as a “fiduciary” under the rule.
Perhaps it would even cover personal portfolio recommendations here on BH, or at least from many of the senior posters who have separate advisory businesses? Unintended consequences are common with increasing regulations.

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Re: Fiduciary Standard - Now open for public comments

Post by Leeraar » Sat Mar 05, 2016 12:17 pm

Malarkey.

Attempts to stop the regulation in Congress have failed, and the government is finalizing the rules.

Maybe we should talk about the "unintended consequences" of allowing non-fiduciary financial advice? :annoyed

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Ramsey, Orman, Cramer may have to get new jobs

Post by mickeyd » Sat Mar 05, 2016 2:26 pm

[Thread merged into here, see below. -admin LadyGeek]

Interesting take on the proposed fiduciary rule. Who will entertain us if they go?
Experts both for and against the rule I have talked to agree its broad reach could extend to financial media personalities who offer tips to individual audience members, a group that includes not just Ramsey but TV hosts like Suze Orman and Jim Cramer, as well as many other broadcasters who opine on business and investment matters. They would be ensnared by the rule’s broad redefinition of a vast swath of financial professionals as “fiduciaries” and its mandate that these “fiduciaries” only serve the “best interest” of IRA and 401(k) holders.
http://www.forbes.com/sites/johnberlau/ ... 08a345e696
Last edited by triceratop on Sat Mar 05, 2016 2:30 pm, edited 1 time in total.
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Re: Ransey, Orman, Cramer may have to get new jobs

Post by mickeyd » Sat Mar 05, 2016 2:29 pm

Misspelled Ramsey. Can't seem to correct it.
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Re: Ramsey, Orman, Cramer may have to get new jobs

Post by triceratop » Sat Mar 05, 2016 2:31 pm

mickeyd,
I edited the title for you. I believe you can edit the title in the same way you can edit a post.

~triceratop
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Re: Ramsey, Orman, Cramer may have to get new jobs

Post by joebh » Sat Mar 05, 2016 2:40 pm

Just more nonsense being spouted by those who want to let financial advisors continue to give advice that isn't in the best interest of their client.
There's no way the fiduciary standard will be applied to entertainers like Ramsey, Orman, Cramer, et al.

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Re: Ramsey, Orman, Cramer may have to get new jobs

Post by Oicuryy » Sat Mar 05, 2016 2:45 pm

Will it also apply to financial professionals who post on internet bulletin boards?

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Re: Fiduciary Standard - Now open for public comments

Post by LadyGeek » Sun Mar 06, 2016 11:35 am

I merged mickeyd's thread into here.

The latest info is here: Definition of the Term “Fiduciary”; Conflict of Interest Rule-Retirement Investment Advice

Public comments and testimony is in the lower-right side menu. If anyone has a later website link (US government source), please post it here.

Please stay factual.
Oicuryy wrote:Will it also apply to financial professionals who post on internet bulletin boards?

Ron
I have no clue. However, we do have a disclaimer at the bottom of every forum page.
No guarantees are made as to the accuracy of the information on this site or the appropriateness of any advice to your particular situation.
I am not a lawyer, nor do I want to be one. Everything is conjecture at this point, so I'm withholding further comments until this shakes out.

============
triceratop wrote:mickeyd,
I edited the title for you. I believe you can edit the title in the same way you can edit a post.
~triceratop
The OP can change the thread title by editing the Subject: line in Post #1. (The thread is now merged, I'm the OP for this thread.)
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Re: Fiduciary Standard - Now open for public comments

Post by Leeraar » Sun Mar 06, 2016 12:14 pm

Webster's definition of a client:

"a person who pays a professional person or organization for services."

It's hard for me to imagine that Jim Cramer's audience are clients.

The fiduciary standard is a consequence of the Dodd-Frank act. (It is not something the current administration just made up.) Near as I can find, the final rule is expected about October of this year.

L.
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