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It’s in Your Own Best Interest to Be a Fiduciary: SEI

By Rita Raagas De Ramos May 29, 2018

Executives at SEI Advisor Network insist broker-dealers should adhere to fiduciary standards even if it’s not required of them. Doing so will help broker-dealers through the complexities of existing and upcoming regulations and give them a marketing advantage, they say.

John Anderson, Oaks, Pa.-based head of practice management solutions at SEI Advisor Network, believes the “fiduciary movement is here to stay” regardless of what happens to the Department of Labor’s fiduciary rule or how the SEC’s Regulation Best Interest package will look like once finalized.

The SEC’s proposed package establishes a best interest standard of conduct for broker-dealers, interprets the fiduciary standard for advisors, and creates a new Customer Relationship Summary form that will clearly state to clients if they are dealing with a broker-dealer or an advisor. Advisors have long been held to fiduciary standards.

“It’s in the interest of the broker-dealers and advisors to keep moving down that path anyway,” says Anderson, whose firm reportedly works with some 7,000 advisors. He is responsible for the company’s programs and solutions focused on helping financial advisors grow their businesses, create efficiencies in their operations and differentiate their practices.

Lawyers and analysts contend it would be difficult to reverse the DOL rule's impact on investors’ awareness of fiduciary standards. Many retirement advisors have poured substantial resources into complying with fiduciary requirements, while investors are more aware of what it means for advisors to function as fiduciaries, thanks in large part to the regulatory updates advisors sent their clients and to extensive media coverage of the DOL rule.

In March, the U.S. Court of Appeals for the Fifth Circuit ordered the DOL to vacate the fiduciary rule in its entirety. The DOL rule, among other things, required retirement advisors to put clients’ interests first. The rule was partially implemented in June 2017 and was supposed to be fully implemented in July 2019, pending a review ordered by President Donald Trump.

The Appeals Court was expected to issue a mandate repealing the DOL rule on May 7, but it hasn’t done so, as of this writing. On that day, the DOL issued a Field Assistance Bulletin to its regional directors saying it would not pursue violations of the sections of the rule already in effect.

SEI Advisor Network’s Anderson notes that broker-dealer firms already changed their infrastructure to get ready for the DOL rule. “I don’t think they are going to turn around and abandon those preparations, at least not entirely,” he says.

Some U.S. states have already created or are creating their own versions of the DOL rule, “and we see that as an area that will really keep expanding,” he says. “The blue states will be going more and more toward this kind of regulation; the red states maybe not.”

Last year, Nevada passed a law that will subject broker-dealers and investment advisors – effective July 1, 2018 – to the Nevada Revised Statutes for financial planners. The measure effectively imposes a statutory fiduciary duty on broker-dealers and investment advisors to act in the best interest of their clients and comply with disclosure requirements.

Connecticut has already introduced similar legislation while New York and New Jersey are currently mulling over bills, according to Reuters. The Maryland senate is passing the buck to its consumer protection agency for now, instructing it to decide whether the state should put a fiduciary law in place, the newswire says.

State courts in California, Missouri, South Carolina and South Dakota have imposed the fiduciary standard on broker-dealers, but 14 other state courts have determined broker-dealers should not be bound to clients by a fiduciary duty, according to Reuters.

The states’ fiduciary rules will matter a lot to broker-dealers because many of them service clients in various locations, and they have to pay attention to the rules in those locations, according to Anderson. He says the residence of the clients determines where the clients will likely file a lawsuit against an advisor.

“The states are enacting laws to protect their residents,” Anderson says.

“If I’m an advisor in Pennsylvania and my client is in Connecticut or Nevada, am I going to have to pay attention to their fiduciary rules? The answer is yes because the way they are writing it is not necessarily under the Investment Advisor Act but under local or state rules, which is kind of what happened in Massachusetts,” he adds.

In a complaint filed earlier in May by Scottrade in the U.S. District Court for the District of Massachusetts, the firm’s lawyers allege that Massachusetts’ top securities cop – William Galvin – brought a case against the firm to enforce the DOL rule. The Massachusetts Securities Division alleges Scottrade violated the DOL rule after it was partially implemented after the firm held sales contests to incentivize broker-dealers. Scottrade, a discount brokerage firm, was acquired by in September last year by TD Ameritrade and Toronto-Dominion Bank.

Meanwhile, Anderson believes that one of the most important things broker-dealers can do to prove they are acting as fiduciaries is to document their investment process.

“You need to show what you’re doing and why you’re doing it,” he says.

John Anderson

Raef Lee, Oaks, Pa.-based head of new services and strategic partnerships at SEI Advisor Network, says part of the preparations done by broker-dealers to comply with the DOL rule include the use of investment, operational or administrative workflows that are automated and absorbed into CRM systems.

Many independent broker-dealers and advisors are automating their workflows and using this to show clients they are putting their best interest first.

Adherence to the fiduciary rule “can be a big marketing plus,” Lee says. “It’s a way of branding. Clients don’t necessarily know exactly what fiduciary means but they want to know that you are putting their best interest above all.”