Here come the lawsuits over fiduciary compliance
November 2, 2016 by Scott Wenger
SAN DIEGO – The advisory world should expect more litigation over compliance with fiduciary regulations as lawyers become more aggressive once the rule is phased in starting in April.
“In Washington right now, the drive to the lowest fee is the base principle,” said Mike Townsend, Schwab’s vice president of legislative and regulatory affairs. At the same time, lawyers are focusing on active investment management as not being potentially fiduciary friendly.
Those lawyers will likely become “very industrious,” added Jeff Brown, who heads Schwab’s office of legislative and regulatory affairs and joined Townsend at a regulatory briefing at the annual Schwab Impact conference.
Advisers can also expect additional regulatory moves. “Once the trial bar is on to something, you know regulators will look at it,” Brown said. Indeed, 81% of advisers think regulation will become more complicated in next 10 years, according to a recent Schwab survey.
As with the Department of Labor’s fiduciary rule, new rules under a Democratic administration won’t come as a result of congressional action. “The regulators will continue to be where a lot of the action is” given the high likelihood of continuing gridlock on Capitol Hill, Townsend predicted.
As for the SEC, Townsend the agency has indicated that it intends to focus on unnecessarily high product costs. “Regulators want to make sure in the exam process [that advisers] can justify why you didn’t recommend the lowest cost option,” he said.
But the SEC won’t move short term to expand the fiduciary requirement beyond the world of retirement investing that will come from the Labor Department regulation. “It’s not going to happen anytime soon,” Brown said.
