Department of Labor officials are looking to harmonize their upcoming fiduciary rule-making with the Securities and Exchange Commission's new standards-of-conduct package as some states press ahead with proposals of their own.
The SEC's rule package, commonly known as Reg BI for its centerpiece best-interest standard that compels brokers to put clients' financial interests ahead of their own and requires them to mitigate financial conflicts, was approved June 5.
The new rules do not affect retirement plans, except some small 401(k) plans served by brokers. But financial professionals who provide advice to retirement plan participants, including rollover recommendations, are subject to the new rules.
In recent months, DOL officials including Secretary Alexander Acosta; Preston Rutledge, assistant secretary for the Employee Benefits Security Administration; and Jeanne Klinefelter Wilson, EBSA's deputy assistant secretary for policy, have said the agency was working with the SEC to promulgate new rules.
"Although the Department of Labor and the SEC have two different statutes, our goal is to proceed under a raw common framework and propose Department of Labor rules (that) track as closely as possible with SEC's best-interest regulations," Ms. Wilson said June 5 at the SPARK National spring conference in Washington.
No specifics have been disclosed yet, but sources said the DOL will likely update prohibited transaction exemptions for conflicted compensation.
Generally, commissions are conflicts of interest and therefore prohibited, which means that it would be forbidden for a broker-dealer to give fiduciary advice that leads to them receiving commissions, said Fred Reish, a Los Angeles-based partner for law firm Drinker Biddle & Reath LLP. "I expect to see proposals that say that, in those cases, commissions would be allowed to be paid if the compensation is reasonable, the advice is in the best interest of the plan or (individual retirement account), and if other similar conditions were met," Mr. Reish said.