Barbara Roper Urges DOL to Crack Down on Fiduciary Rulebreakers

7 Questions About Itemized Deductions Under New Tax Act

Advisor Share-Class Infractions a Widespread Problem, SEC Says

What Is Going on With Cetera?

The Consumer Federation of America urged Labor Secretary Alexander Acosta on Tuesday to crack down on violations of the Impartial Conduct Standards set out in Labor’s fiduciary rule, as infractions are occurring.

Case in point: the recent charge levied by the Massachusetts Securities Division against Scottrade for alleged “dishonest and unethical activity and failure to supervise” for conducting sales contests that violated Labor’s impartial conduct standards.

The Consumer Federation also told Securities and Exchange Commission Chairman Jay Clayton the same day that Massachusetts’ action “provides a timely reminder” of the need to include in its anticipated fiduciary rule “tight restrictions on practices that encourage and reward advice that is not in customers’ best interests.”

Barbara Roper, the consumer group’s director of investor protection, urged Acosta in a Tuesday letter to start using Labor’s “own enforcement authority against firms, such as Scottrade, that clearly fail to work ‘diligently and in good faith to comply’” with the fiduciary rule’s impartial conduct standards, which took effect on June 9, 2017. 

Acosta told a House panel last November that the best-interest standard (also known as the impartial conduct standards) under the Labor Department’s fiduciary rule is “in effect,” and that as long as firms are “proceeding to implement” those standards, Labor is in a “compliance assistance” mode.

However, if firms are committing “willful violations,” Labor will use its enforcement authority, Acosta told the lawmakers.

The Consumer Federation, wrote Roper along with the federation’s financial services counsel Micah Hauptman, “supported the Department’s decision to refrain from bringing enforcement actions in cases of inadvertent rule violations during an initial transition period, but only if this policy of forbearance is truly limited to instances where firms are working ‘diligently and in good faith to comply.’”

Since the announcement of Labor’s “non-enforcement policy” under the fiduciary rule’s transition period, which runs until July 1, 2019, Roper and Hauptman have informed Labor twice of “potential violations” of the impartial conduct standards, they said.

On Oct. 3, 2017, the federation asked Labor to investigate allegations that firms were inappropriately shifting retirement savers into fee accounts “without first ensuring the shift was on terms that were in the best interest of the investor.”

Later that month, the federation presented “evidence from an industry survey suggesting that many firms had failed to change either their product mix or compensation practices to comply with the rule,” Roper and Hauptman wrote.

The conduct Scottrade is alleged to have engaged in “falls squarely within the department’s jurisdiction, since it relates to rollover recommendations, which are considered investment advice” under the Employee Retirement Income Security Act.

Moreover, Scottrade’s alleged misconduct “clearly fails to meet the good-faith compliance test,” the two added. “It is clear, for example, that Scottrade knew its rollover recommendations were covered by the rule and that its practice of conducting sales contests to encourage rollovers was inconsistent with the rule.”

Massachusetts Securities Regulator William Galvin told ThinkAdvisor in a recent interview that he worries the SEC will propose a fiduciary rule that “would serve to dilute Labor’s fiduciary rule,” and one that could  “prevent the states from taking investor protection actions that are unlikely to be taken under the current light-touch regulation coming out of Washington.”

Roper told ThinkAdvisor on Tuesday that the federation shares “the concern that SEC could adopt a weak rule that undermines the strong protections in the DOL rule. That’s certainly what financial firms and their lobbyists have been lobbying for.”

However, she added, “We’re keeping an open mind … until SEC actually comes out with its proposal. Chairman Clayton periodically makes statements that are cause for hope, but we’ve been burned before.”

The consumer group also shot off a letter on Tuesday to Robert Cook, president and CEO of the Financial Industry Regulatory Authority, asking the self-regulator “to be on the lookout” for similar violations to Scottrade’s, and “whenever appropriate, to use your enforcement authority to prevent misconduct.”

Said Roper and Hauptman: “While the issues in the Scottrade case appear to be particularly stark, there’s no reason to believe they are unique. On the contrary, we are concerned that some firms seem to have taken the Department’s non-enforcement policy during this protracted transition period as a signal that they can willfully flout the requirements of the rule, and give conflicted advice that is not in customers’ best interests, without fear of repercussions.”

While the Massachusetts’ action relates to conduct prohibited under Labor’s fiduciary rule, Roper and Hauptman told state securities regulators that the action was brought “using securities law authority regarding dishonest and unethical practices and failure to supervise.”

Other states should use their “parallel authority to prevent and punish violations of the rule,” Roper and Hauptman said.

— Related on ThinkAdvisor:

You are signed up!

A survey of advisors nationwide reveals how the use of ETFs is expanding and what factors are likely to further support this trend. width:300px!important;max-height:36px; ThinkAdvisor TechCenter

ThinkAdvisor’s TechCenter is an educational resource designed to give you a competitive edge by keeping you abreast of new tech innovations and need-to-know information that can be applied to your business. width:300px!important;max-height:36px; Financial Education Resource Center Financial Education Resource Center

ThinkAdvisor and the College for Financial Planning have partnered to bring you a series of helpful educational tools that you can use to take your career to the next level. padding: 0px;width: inherit; ETF & Smart Beta Research ETFs: Top 5 Advisor Challenges and How to Overcome Them

Access this interactive playbook to learn about the growing world of ETFs. Resources How RIAs Can Un-Commoditize Investing through Portfolio Optimization

Learn how independent advisors are using new optimization technology to stay competitive and maintain premium pricing, while the industry trends towards discounting and commoditizing services.

The right broker/dealer is out there for you, and with a little research and self-reflection, you can find your match. Use this guide to help…

Signatures are a cornerstone in the client lifecycle and transaction process for advisors. Learn how you can accelerate client decisions, reduce operating costs and provide…

Join this webcast to see how Trisha Qualy, Director of Wealth Management at AdvisorNet Financial, took client assets from $100 million to $1.3 billion in…

Join this complimentary webcast to learn innovative strategies that have proven effective in containing rising health costs.

Join this conversation as a panel of experts provides tips and best practices to optimize your tech resources for business growth.

Leave a Reply

Your email address will not be published. Required fields are marked *