Compliance April 18, 2017

Bill Would Encourage More Employee Stock Ownership

The legislation would reform the Securities and Exchange Commission (SEC) Rule 701, which imposes a slew of regulations on small businesses, especially newly formed start-ups.
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The House of Representatives passed the Encouraging Employee Ownership Act (H.R.1343) by a bipartisan vote of 331 to 87.

A press release from the office of Congressman Lee Zeldin (R-New York) says the legislation would reform the outdated Securities and Exchange Commission (SEC) Rule 701, which imposes a slew of complicated regulations on small businesses, especially newly formed start-ups. SEC Rule 701 exempts companies below a $5 million threshold to offer securities as part of employees’ compensation without having to comply with federal securities registration requirements. Companies over the threshold must provide additional disclosure, “creating a significant obstacle for companies that want to compensate their employees through equity or other securities such as stocks,” the release says.

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According to an update by the National Center for Employee Ownership (NCEO), the bill would increase to $20 million the current $5 million cap on the amount of stock closely held companies can award employees before triggering certain SEC reporting requirements. The amount would be indexed for inflation annually.

Congressman Zeldin says, “The Encouraging Employee Ownership Act of 2017 is bipartisan legislation that will help small businesses grow and expand, encouraging job creation and economic growth, by allowing companies to retain their employees through incentives.”

Text of the bill and actions related to the bill can be viewed here.

Data & Research April 18, 2017

Most Investors Would Be Happy to See New Fiduciary Standard

Financial Engines says it has clear and compelling evidence that Americans strongly favor stricter conflict of interest protections when it comes to retirement investment advice. 
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A new survey report published by Financial Engines argues the fate of the Obama-era Department of Labor (DOL) fiduciary rule has grown increasingly complex and uncertain since President Trump took office.

While the new president, along with Republican leadership in Congress, have expressed a desire to dial back or wholly overturn the fiduciary rule reforms, currently they are still very much intact. The rulemaking’s implementation has simply been delayed, from a previous target date of April 10 to instead take effect June 9.

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It remains to be seen what path President Trump and/or Congress may take, but Financial Engines says it is abundantly clear that average Americans favor the implementation of new conflict of interest protections for the retirement plan investing industry.

According to Financial Engines, fully 93% of Americans “think financial advisers who provide retirement advice should be legally required to put their clients’ best interest first.” In fact, more than half of respondents (53%) mistakenly believe that all financial advisers are already legally required to put the best interests of their clients first.

On Financial Engines analysis, these two stats taken together should offer something of a moral imperative to advisers to be more willing to embrace true fiduciary roles.

NEXT: Testing investor understanding of conflicted advice 

Compared to a similar survey last year, Financial Engines finds Americans “have a slightly better understanding of the difference between a financial adviser who is a fiduciary and one who is not.” Specifically, 21% say they understand the difference today, compared to 18% a year ago.

“However, many Americans still don’t know how to tell if an adviser is a fiduciary,” Financial Engines warns. “Only 50% of investors who work with a financial adviser are certain that their adviser is a fiduciary, while 38% don’t know if their adviser is a fiduciary or not.”

Christopher Jones, chief investment officer at Financial Engines, warns the “bar is rising.”

“Once people understand the benefits of working with a fiduciary, they want one on their side,” he says. “Consumers want to know that they can trust their financial advisers. According to the survey, if investors discovered their financial adviser was not a fiduciary, many say they would take action.”

The Financial Engines data shows only 12% of investors feel they would continue working with the same adviser in the same capacity, after learning the adviser is not in fact a fiduciary.

Speaking frankly, Jones suggest financial firms and advisers “often parse their words carefully to give the appearance of being a fiduciary, even when they are not … While the debate over the conflict of interest rule has raised consumer awareness about this important standard, investors must still be careful to demand advisors that act in the sole best interests of their clients.”

Additional results from the survey, along with other research reports, are available at https://financialengines.com/workplace/resources. 

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