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Fiduciary, Best Interest, or Something Else?

The election will determine the next move in the ongoing battle over the regulation of advice.

Everyone is sick of this topic. They should be. Policymakers have been arguing about fiduciary duties, conflicts of interest, and standards of conduct for advisors for years. They have been arguing with each other—across agency and political party lines—and they have been arguing with industry. Not only that, after several false starts, regulators and advisors finally implemented a new standard: Regulation Best Interest. No matter which way the election goes, the fight over fiduciary duties is far from finished. Advisors and investors need to pay attention to what happens in November and what that means going forward.

First, a quick review of where we are today. Everything is a confusing mess. Regulation Best Interest, which covers brokers’ recommendations on securities, has been in effect since June, but brokers are still figuring out exactly what it will mean and what the SEC will look for as it begins enforcing it. Meanwhile, the Department of Labor has proposed more rules to align advice on IRAs and 401(k) rollovers to Regulation Best Interest for both brokers and Registered Investment Advisors—except, of course, in cases where the rule does not apply, which hinges on whether a relationship is, or will be, ongoing. The DOL had a hearing two weeks ago on the proposal; industry representatives said the rule was too tough, consumer groups said it was too lax, and everyone said it was unclear when a rollover recommendation would trigger fiduciary status under the rule.