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Update ~ DOL Fiduciary Rule will Require Investment Advisors & Brokers to Follow Fiduciary Requirements

Labor Secretary, Thomas Perez received high marks for guiding the fiduciary rule through the regulatory shoals, but now supporters question whether he gave away too much…


Investment News, Mark Schoeff Jr. reported, When Labor Secretary Thomas Perez last week rolled out the final version of a regulation that would raise investment advice standards for retirement accounts, he achieved a major milestone for a measure that was first proposed nearly six years ago. For the first time, investment advisers and brokers will have to adhere to the same fiduciary requirement — acting in the client’s best interests — at least when working with 401(k) and individual retirement accounts. While some industry groups that had strongly opposed the DOL fiduciary rule say they are still studying it, others that had supported it criticized Mr. Perez for making too many revisions in an attempt to appease the opposition. Some observers gave the secretary credit for pushing the historic rule across the finish line, something the Securities and Exchange Commission has not been able to do.

“They got something off the launchpad that we’ve been waiting decades to see, which is a more balanced way of handling personalized investment advice,” said Kurt Schacht, managing director of the CFA Institute. “Hats off to DOL. No one else has been able to move the needle on that.”

BLASTED BY CRITICS – Congressional opposition has remained resolute. House Speaker Paul Ryan, R-Wis., and Senate Majority Leader Mitch McConnell, R-Ky., both immediately lambasted it and vowed to try to halt it. Although most financial industry trade groups say they are still studying it, they also continue to be wary of what they call a complex and costly rule. Mr. Perez promised skeptics that the final rule would address concerns raised about the proposal — introduced in April of last year — in more than 3,000 comment letters, 100 DOL meetings and four days of public hearings. Indeed, the final version — a 1,023-page rule — was significantly revised, including a reworking of its centerpiece, the best interest contract exemption. The exemption allows brokers, who currently only have to meet a suitability standard in recommending investments, latitude in their compensation arrangements, including charging commissions or taking revenue sharing, as long as they sign a legally binding document that obligates them to put their clients’ needs above their own.

Mr. Perez said last week that the DOL made the rule “more workable and doable.”
“We listened, we learned and we adjusted,” he said. “I am quite confident industry will be able to comply with the streamlined rule.”

Ed Gjertsen, vice president of Mack Investment Securities, a hybrid advisory firm, and chairman of the Financial Planning Association, said the DOL realized the regulation would have to be effective in today’s diverse advice marketplace. Read More>>>

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Independent Broker Dealers Must Prepare for 2016 Regulatory Changes

Independent broker-dealers facing a number of looming regulatory changes

Coming 12 to 24 months could divide the industry into winners and losers — firms that will be able to adapt, and those that might fall by the wayside
Jan 24, 2016 @ 12:01 am
By Bruce Kelly

Bruce Kelly, Investment News reported-Independent broker-dealers are facing a number of regulatory changes over the coming 12 to 24 months that could divide the industry into winners and losers — firms that will be able to adapt and become stronger and those that won’t and might fall by the wayside.
The changes include the pending Department of Labor fiduciary rule for retirement accounts, which could drastically increase business costs for IBDs; the continued decrease in commissions from a slowdown in the sale of high-priced nontraded real estate investment trusts due to an industry account-statement rule to take effect in April; and a growing focus by individual states on enacting legislation that would make it mandatory for financial services professionals to report elder abuse.
Other ongoing issues facing the industry include the cost of updating technology and compliance systems, which has been a constant battle, especially for small and midsize IBDs.

MARKET VOLATILITY-Volatility in the market, which scares advisers’ clients, also makes it harder for firms to predict fee revenue, which is calculated on clients’ accounts at the end of each quarter.
All in all, 2016 promises to be the start of one of the most disruptive periods in the industry’s history.
“We’re clearly going through a period of significant uncertainty, including volatility in the markets,” said Richard Lampen, chief executive ofLadenburg Thalmann Financial Services Inc., which operates a network of five firms employing 3,750 advisers.
Ever optimistic, broker-dealer executives see plenty of opportunities to emerge as winners while competitors struggle. Brokerage executives are particularly sanguine about the potential for recruiting this year.
“As the marketplace shifts, the firms that will win are the ones that can pivot along with the marketplace and take advantage of those opportunities,” said Bill Morrissey, a managing director in charge of recruiting with LPL Financial Inc. “The big winners are going to be firms that have size and scale to be a partner to advisers and can afford to invest in people, technology and infrastructure, and also focus on how to solve the increasingly complex needs for the end investor.”
“There will be a number of firms that lack the financial and intellectual resources to make those adjustments,” Mr. Lampen said. “There could be a strategic opportunity for us and other larger firms as we see some of the smaller firms [try to] make the necessary investments in post-DOL world.”
“It’s a tough environment if you don’t have the resources to solve issues,” said Amy Webber, president of Cambridge Investment Research. Read More>>>

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2016 ~ Independent Broker Dealers Brace for the DOL Fiduciary Rule

Independent broker-dealers prepare for the reality of the DOL fiduciary rule

Firms are already girding for what they say will be the high costs and compliance complexities due to the DOL Fiduciary Rule

Jan 24, 2016 @ 12:01 am
By Mark Schoeff Jr. , Investment News

Mark Schoeff Jr., reported – Independent broker-dealers are already girding for what they say will be the high costs and compliance complexities of a Labor Department proposal that would raise investment-advice standards for retirement accounts.

A final version of the regulation — which has the backing of the White House and survived an attempt to kill it in recent government-funding legislation — is likely to be released in the spring, so that it can go into effect comfortably before the end of the Obama administration. As proposed, it has a tight eight-month implementation period.

The measure includes a legally binding requirement for brokers to act in the best interests of their clients and mandates a long list of fee disclosures. Right now, brokers need only make sure the investments they recommend are suitable for their clients.

The financial industry has been fighting the proposal, saying that it would significantly increase liability risk and regulatory costs for brokers and make giving and receiving advice much more expensive.

But some IBDs are preparing for the reality of advising clients in individual retirement accounts under the new rule.
“It is time to stop feeling sorry for ourselves and get proactive on it, otherwise, we’re going to get behind the eight ball,” said Amy Webber, president of Cambridge Investment Research Inc.

WILL BE COSTLY – Clearing and custody services provider Pershing has held more than two dozen meetings about the rule with brokers and advisers and recently conducted a webinar for more than 300 clients of its platform.
“Sitting back is not the best strategy,” said Rob Cirrotti, managing director and head of retirement solutions at Pershing.
The first thing that IBDs are realizing is that the DOL rule will be costly to put into practice. Cambridge estimates it will have to spend $15 million to $17 million to upgrade its technology and make other operational changes.
Commonwealth Financial Network estimates that implementation will cost $6 million. That would include building a compliance infrastructure and bringing 479,000 IRA accounts into compliance.
“That’s nuts, when you think about how much manpower and resources it’s going to take to accomplish,” said John Rooney, Commonwealth managing principal. Read More>>>

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