The Securities and Exchange Commission's best-interest standard is slated to take effect in a little more than four months, but there are still plenty of fights left with respect to regulating the industry.
A high-profile lawsuit continues to linger and the first state moved on Feb. 21 to implement a fiduciary standard of its own, but financial services professionals nevertheless are preparing for the implementation of the SEC standard on June 30.
The SEC's rule package is commonly known as Reg BI for its centerpiece best-interest standard that aims to compel brokers to put clients' financial interests ahead of their own and requires them to mitigate financial conflicts, 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.
Many broker-dealers will likely scale back their rollover recommendation business and instead focus on rollover education with clients, said Fred Reish, a Los Angeles-based partner for law firm Faegre Drinker Biddle & Reath LLP.
"If you're a broker-dealer you don't have any choice but to get ready because if it turns out that they aren't delayed or overturned, what are you going to do if you wait until April to start getting ready?" Mr. Reish said. "You cannot do it that fast. Turn around three times and it's going to be June 30."
In September, three months after Reg BI was approved, eight attor- neys general filed a federal lawsuit challenging the rule, saying it doesn't sufficiently protect investors under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The same month, a lawsuit similar in scope was filed by XY Planning Network, a Bozeman, Mont., financial planning platform for fee-for-service financial advisers seeking to serve Generation X and millennial clients.
XY Planning Network, in essence, claims that the SEC's new rule fails to hold brokers to the same tough fiduciary standard governing RIAs. In creating Reg BI, it claims the SEC exceeded its regulatory authority by permitting comprehensive financial planning services to be delivered in connection with the sale of brokerage products without requiring a financial planner to register as an investment adviser and/or without fully subjecting such financial planning advice itself to a registered investment adviser's fiduciary duty.
The lawsuit's primary goal is to have Reg BI vacated "so we can start over and try to get a better rule in place," said Michael Kitces, XY Planning Network's co-founder, Washington. He would like a rule where all financial planning advice is subject to the RIA's fiduciary duty.
The two lawsuits have been bound together since they're challenging the rule in similar ways, Mr. Kitces explained.