SEC

George Michael Gerstein to Compliance Reporter: Likely a ‘Holding Pattern’ for Now on Compensation Changes in Wake of Fiduciary Rule Sunset

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

Clayton floats possible extension of standard of conduct proposal comment period

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

Live Blogging: Chicago Chief Compliance Officers Gathering

Larry Stadulis, Sara Crovitz, and Alan Goldberg joined me in explaining the SEC standard of conduct release to a gathering of chief compliance officers in Chicago! We discussed a number of the key issues associated with the proposed Interpretive Release applicable to RIAs, and described our “stoplight” schematic on how broker-dealers are affected by Reg BI. We also got everyone up to speed on the various state developments. It was great spending the week here meeting so many great people.

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

Timeline of Fiduciary Rulemaking

Timeline of Fiduciary Rulemaking (click image to enlarge)

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

The Fiduciary Rule: Gone, But Not Forgotten

With yesterday’s action by the Fifth Circuit Court of Appeals effectively unwinding the Department of Labor (DOL) Fiduciary Rule, financial institutions now only become investment advice fiduciaries to retirement plans subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA) and individual retirement accounts if they satisfy the original five-part test, a higher threshold (for becoming a fiduciary) to be sure. While the road to the Fifth Circuit officially vacating the Fiduciary Rule unnerved some, we urged calm, and believe that a measured approach continues to work best.

As a reminder, under the five-part test, one becomes an investment advice fiduciary under ERISA if he or she (1) provides advice as to the value of securities or other property, or makes recommendations as to the advisability of investing in, purchasing or selling securities or other property, (2) on a regular basis, (3) pursuant to a mutual agreement, arrangement, or understanding with the plan or a plan fiduciary, that (4) the advice serves as a primary basis for investment decisions with respect to plan assets, and where (5) the advice is individualized based on the particular needs of the plan or IRA.

With the Fiduciary Rule now just a memory, various firms’ fiduciary status is likely to change, particularly around rollover recommendations. Because of this, we continue to recommend:

  1. Inventorying the type and nature of typical communications with retirement investors (e.g., other fiduciaries, plan participants, IRAs, etc.) and tagging those that might no longer be fiduciaries under the five-part test.
  2. Identifying any representations, disclosures or statements regarding fiduciary status that were made in light of the Fiduciary Rule’s scope, which may at some point need correction.
  3. Re-examining what changes were made to internal policies and procedures to account for the Fiduciary Rule, particularly as state regulators have used non-compliance as a basis for blue sky law violations.
  4. Reconsidering any revisions to contracts in order to satisfy the DOL’s guidance on 408(b)(2) disclosures that it issued last August.
  5. Re-evaluating whether to continue excluding small plans and IRAs from investing in private funds, if that determination had been made to prevent a fund manager from inadvertently becoming an investment advice fiduciary to an IRA investor or small plan during the sales and subscription process.

But the DOL is not the only show in town. Fiduciary rulemaking over retail advice continues to evolve, as we highlight in the timeline below.

Timeline Fiduciary Governance Retail Investment Advice
(Click image to enlarge)

Firms continue to comb through the Securities and Exchange Commission’s (SEC) standard of conduct release. Investment advisers, for instance, may be seeking clarity from the SEC on its proposed Interpretive Release on the extent to which the adviser may satisfy its fiduciary duties through disclosure. Both broker-dealers and investment advisers are also considering the extent to which proposed Form CRS would help alleviate investor confusion.

The SEC also proposed (A) to require broker-dealers and investment-advisers to prominently disclose their registration status; and (B) to restrict standalone broker-dealers and their financial professionals from using the terms “adviser” and “advisor” as part of their name or title. These proposed changes are part of greater scrutiny by federal and state regulators over the titles financial professionals use that could confuse investors as to the nature of the relationship, which has been the focus of a number of state legislatures. Interestingly, the states are taking different approaches to title reform.

Various bills, including New York’s Investment Transparency Act, which either attempt to impose fiduciary status and other heightened obligations on federally-regulated broker-dealers and investment advisers or seek enhanced disclosure of whether a firm is acting in a fiduciary capacity, are advancing. Some of these bills interplay with the SEC standard of conduct release with the prospect that the risk associated with these bills will not be known until the SEC finalizes its standard of conduct release, assuming SEC Chair Jay Clayton can garner enough votes from his fellow commissioners.

The Fiduciary Rule may be gone, but it hasn’t been forgotten. Investor confusion over fiduciary status and conflicts of interest have the attention of the SEC and the states.

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

David Grim: SEC Release “Potentially Transformative”

David Grim (left), at tonight’s ICI General Membership Meeting, says the “proposed reforms represent potentially transformative changes for firms providing investment advice to retail investors” and that “firms have real opportunity to engage with regulators and shape any final policy outcomes.”

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

Larry Stadulis’ One Word to Describe Effect of SEC Release: Uncertainty

Larry Stadulis, at the ICI General Membership Meeting in Washington, says, “uncertainty is the key takeaway from my perspective.  Proposed rules usually clearly address those practices they seek to eliminate.  That is not the case here.”

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

George Michael Gerstein Discusses Interplay of SEC Release With DOL Fiduciary Rule and State Developments

George Michael Gerstein (right), joining Larry Stadulis (not pictured) and Dave Grim (left) at the ICI General Membership Meeting, identified the moving regulatory pieces and impetus of major fiduciary law reform.

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

David Grim, Larry Stadulis & George Michael Gerstein @ ICI – The SEC, the DOL, and the States: A New Fiduciary World

Join us tomorrow at the ICI General Membership Meeting: 5:15-5:55 pm at Washington Hilton, Gunston Hall

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

Live Blogging: ACA Compliance Group Spring Conference

I am here on Amelia Island, FL about to start our panel on fiduciary law developments: the SEC release (and what it means practically-speaking, the delta between adviser and broker-dealer duties, the issues around the new disclosures, etc.), the latest on the DOL Fiduciary Rule (FAB 2018-02, the Fifth Circuit decision, how firms should proceed with compliance), what is in store from state legislatures and regulators, and the recent DOL ESG guidance and how managers should view the guidance. There are over 200 attendees here and, based on questions I received last night, there is a real need for clarity on fiduciary governance at the federal and state levels!

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.