Every so often, a measure or a regulation comes along that is the legal equivalent of a river changing course. To Michael Kitces, the Department of Labor’s (DOL) fiduciary rule is one of them, recently calling it a “watershed moment.” And that’s not all — Kitces considers it only the beginning.
“I view the DOL’s fiduciary rule as a watershed moment for the emergence of a bona fide financial planning profession,” Kitces said in an interview with Fiduciary News’ Chris Carosa at the recent meeting of Syracuse, N.Y. chapter of the Financial Planning Association.
Kitces argues that inaction by the Securities and Exchange Commission (SEC) was part of the reason the DOL issued the fiduciary rule in the first place. “Frankly, if the SEC properly enforced the rules on the books for the ’40 [Investment Advisers] Act and had limited brokers from holding out as financial advisors (where their advice is clearly no longer just “solely incidental” to the sale of brokerage services), we may have gotten there a lot sooner,” he told Carosa, continuing, “but the SEC systematically failed to enforce for the past two decades, and now the DOL has by necessity forced the issue.”
Kitces expects there will be more to come, saying that “the regulatory change can’t end with the DOL rule. It won’t.” This, he says, is because the fiduciary rule “has created an untenable distinction between retirement accounts (held to a fiduciary standard) and brokerage accounts (still held to a suitability standard).” He argues that there will be different legal standards for advisors at a broker-dealer for the same client, based on whether those advisors are talking about the IRA or taxable account.
“That separation will not hold,” Kitces says. He contends that it will result in the SEC acting on a fiduciary rule of its own — but not right away. Kitces’ crystal ball suggests to him that a uniform fiduciary duty will not arise until approximately 2020.
“I view the DOL’s fiduciary rule as a watershed moment for the emergence of a bona fide financial planning profession,” Kitces said in an interview with Fiduciary News’ Chris Carosa at the recent meeting of Syracuse, N.Y. chapter of the Financial Planning Association.
Kitces argues that inaction by the Securities and Exchange Commission (SEC) was part of the reason the DOL issued the fiduciary rule in the first place. “Frankly, if the SEC properly enforced the rules on the books for the ’40 [Investment Advisers] Act and had limited brokers from holding out as financial advisors (where their advice is clearly no longer just “solely incidental” to the sale of brokerage services), we may have gotten there a lot sooner,” he told Carosa, continuing, “but the SEC systematically failed to enforce for the past two decades, and now the DOL has by necessity forced the issue.”
Kitces expects there will be more to come, saying that “the regulatory change can’t end with the DOL rule. It won’t.” This, he says, is because the fiduciary rule “has created an untenable distinction between retirement accounts (held to a fiduciary standard) and brokerage accounts (still held to a suitability standard).” He argues that there will be different legal standards for advisors at a broker-dealer for the same client, based on whether those advisors are talking about the IRA or taxable account.
“That separation will not hold,” Kitces says. He contends that it will result in the SEC acting on a fiduciary rule of its own — but not right away. Kitces’ crystal ball suggests to him that a uniform fiduciary duty will not arise until approximately 2020.
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