Many in the retirement plan advisory industry are closely watching
the Trump administration’s effort to repeal the Department of Labor’s (DOL)
fiduciary rule, but the wider financial services community is clearly focused
on the related effort to attack the Dodd-Frank reforms.
A quick refresher: The Dodd-Frank Wall Street Reform and
Consumer Protection Act was enacted on July 21, 2010, and it was expected to at
least peripherally impact the standard of conduct of those financial advisers
who provide their services as registered representatives of broker/dealers.
Mainly the rulemaking impacted consumer and investment banks, but the extent of
the changes mandated by Dodd-Frank were massive in scope.
As a very helpful “Dodd-Frank
cheat sheet” supplied by Morrison and Foerster observes, the term “Dodd-Frank”
represents an entire ecosystem of rules and requirements that have been variously
well-established among the nation’s large and small financial institutions.
Similar to the DOL fiduciary rule, millions have been spent on compliance
The cheat sheet outlines the reforms this way: “The
Dodd-Frank Act implemented changes that, among other things, affected the
oversight and supervision of financial institutions, provided for a new
resolution procedure for large financial companies, created a new agency
responsible for implementing and enforcing compliance with consumer financial laws,
introduced more stringent regulatory capital requirements, effected significant
changes in the regulation of over the counter derivatives, reformed the
regulation of credit rating agencies, implemented changes to corporate
governance and executive compensation practices, incorporated the Volcker Rule,
required registration of advisers to certain private funds, and effected significant
changes in the securitization market.” Get all that?
At the time of its implementation, Marcia Wagner, a trusted ERISA
attorney and columnist for PLANADVISER, explained that the Dodd-Frank Act
was technically unrelated to the Department of Labor’s regulatory initiative to
broaden the “fiduciary” definition under the Employee Retirement Income Security Act (ERISA). This was the rulemaking
specifically targeting financial advisory professionals and their supervising
firms, but both efforts were expected to have an impact on the standard of care
that brokers must adhere to when advising their clients, including retirement
plan clients. This was because the Dodd-Frank Act required the U.S. Securities
and Exchange Commission (SEC) to perform a study of the different standards of
conduct that apply to broker/dealers and investment advisers working in various distribution channels and with various compensation structures.
Obama administration officials ostensibly wanted a
two-pronged attack against what they perceived as conflicts of interest standing
between fair access to investment products and consumers, one lead by the DOL
and the other by the SEC. Their goal, now quickly unraveling under President
Trump, was to start to reduce confusion about client care standards that were
variously applied based on adviser type and compensation model. In the end, the
DOL far outpaced the SEC in proposing and adopting regulations impacting
conflicts of interest—although the SEC
has indicated its research efforts support the basic notion of unifying
NEXT: How likely is a
full successful repeal?