It will take time for the fully detailed picture to emerge, but the SEC voted late Wednesday to propose new conflict of interest standards for how broker/dealers and financial advisers label themselves and sell products under various fee structures to retail clients.
Amid a glut of retirement plan industry litigation and regulatory change, advisers are asking the twin questions of whether one owes a fiduciary duty to their client, and if so, what exactly those fiduciary duties entail.
Instead of making the disclosure on Form N-PORT on a quarterly basis, firms would discuss their liquidity risk programs in their annual statements.
However, the deadlines for creating a liquidity risk management program and to limit illiquid investments to 15% of a fund’s portfolio remain unchanged: December 1, 2018, for larger fund groups and June 1, 2019, for smaller fund groups.
Offering some preliminary commentary on the SEC’s newly announced adviser 12b-1 fee conflict of interest “amnesty” program, as it’s being referred to in the trade media, Wagner Law Group attorneys warn of the inherent risks in the self-reporting of violations.
Under the new “SCSD Initiative,” the SEC’s enforcement agents will recommend “standardized, favorable settlement terms” for investment advisers that self-report that they failed to disclose conflicts of interest associated with the receipt of 12b-1 fees by the adviser or an affiliated broker/dealer; the regulator further warns that advisers who fail to take advantage of this program will be punished more severely in the future.
The new tool aims to help advisers speak regularly with clients in efficient and seamless ways.
Regulatory developments in Nevada and New York show inaction at the federal level on clarifying advisers’ and brokers’ fiduciary duties is leading to a patchwork of state-by-state approaches to mitigating conflicts, real and perceived.
The SEC’s new Fixed Income Market Structure Advisory Committee aims to tackle difficult bond market liquidity challenges, with its first official meeting coming up this week.
More important than the fact that individual brokers or executives are being punished is the recognition that retirement plans and large institutional investors are routinely subject to fraud schemes.
Retirement plan fiduciaries must understand the expenses their participants pay to make trades and access investments, but their duty to monitor and ensure reasonableness is not limited to the issue of pricing alone.
Leadership at both the DOL and SEC have signaled a willingness to work together to find complementary approaches to managing advisers’ conflicts of interest—but it will be a heavy lift to accomplish a uniform standard.