401(k) Specialist Issue 2 - 2019 - 23

401(k) INVESTMENTS
CEFEX (Centre for Fiduciary Excellence),
and roundly seen as one of the leaders of
the fiduciary standard movement.
" It's important to recognize that Reg BI
is much less than a fiduciary rule. While it
has fiduciary-like principles embedded, the
proposed best interest rule falls well short of
a full fiduciary standard. "
Kathleen McBride, AIFA, AIF, is more
blunt.
" The safe harbor in Reg BI codifies
practices that are not good for investors and
makes it even more confusing for them, "
says the founder of FiduciaryPath, who is
also a CEFEX analyst. " It completely eviscerates
the good that the rule could have
done. "
Calling it " progress at a cost, " Aikin adds
that there are degrees of unhappiness.
" Reg BI doesn't extend true fiduciary accountability
to all those who provide advice,
but it does set a higher bar for broker-dealers
than what exists today and establishes
stronger obligations to manage costs and
conflicts.
" Perhaps the biggest failing of Reg BI is
that it adds to consumer confusion rather
than reduces it. The fiduciary standard
is a true best interest standard, Reg BI is
really a heightened suitability standard and
the SEC's proposal does little to make the
considerable difference between the two
standards clear. "
Former SEC economists attack
their own
" Extraordinary " and " I've never seen anything
like it, " are how Aikin and McBride,
respectively, describe the formal comments
by 11 former SEC economists on Reg BI
that were released in February 2019.
The group says that the SEC's economic
analysis of Reg BI is " weak and incomplete "
and that it " seems to fall short of the best
attainable analysis and we are concerned
about the commission's reputation for doing
careful economic policy analysis. "
To have former career officials weighing
in so harshly on Reg BI puts the SEC between
a rock and hard place, says Aikin.
" The SEC wants to finalize Reg BI,
but what they've introduced is flawed in a
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but what they've introduced is
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number of ways. If they respond to criticism
and make significant changes from the April
2018 proposal, they'd be required to go out
for public comment again, " adding that he
thinks it could also be vulnerable to legal
challenges.
Citing the potential for consumer
confusion as a result of Reg BI, the former
officials note that the economic analysis's
" discussion of potential problems in the
customer-advisor relationship (is) incomplete "
and they " identify several features of
the market for ongoing retail investment advice
that might be considered problematic. "
McBride notes that though she is not a
" regulation hound, " a rule that could lead to
consumer confusion is " just plain wrong. "
Regarding an era of deregulation for
deregulation's sake, she adds, " You can't
take the seatbelts off the investors and then
throw them into a convertible. "
Industry response to Reg BI is
mixed
Stradley Ronon's Gerstein calls the industry
response to Reg BI " nuanced. "
" Reg BI comes in the wake of the DOL
rule, which caused heartburn in terms of industry
compliance for many, " says Gerstein.
He notes that many investment advisors
are in a " state of purgatory " because they
see the marketing benefit of the previous
DOL rule but if policies were changed to
adhere to it, and you don't execute on those
points to the letter, you could find yourself
in legal trouble.
Some see Reg BI as a win for broker/
dealers and insurance groups, whose lobbying
dwarfed the interests of consumer-focused
groups.
Notes Gerstein, there was general support
amongst commenters that the SEC's
proposals were well-intentioned and that
the SEC should continue to take a lead
on formulating a best interest standard for
broker-dealers.
" However, many commenters felt the
SEC's proposal was vague and went far
beyond current broker-dealer obligations.
Many hoped the final rules would show significant
improvements over the proposals. "
Additionally, he adds, the attorneys general
of New York, California, Connecticut,
Delaware, Hawaii, Illinois, Maine, Maryland,
ISSUE 2 2019 | 401kSpecialist.com
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401(k) Specialist Issue 2 - 2019

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