What We’re Reading about the SEC Advice Rule, Fiduciary Rule, and Broker Protocol

Current Events

Most of the sector’s recent press has focused on the SEC’s proposed advice rule. We’ve highlighted some of the more salient pieces on the proposed rule, as well as articles on a few other topics that have been making news in the industry.

5th Circuit Denies AARP, States Motion to Defend DOL Fiduciary Rule

By Mark Schoeff, Jr.

The long-discussed DOL fiduciary rule, which would have held brokers to a fiduciary standard when managing clients’ retirement accounts, was struck down on March 15 by the 5th Circuit Court of Appeals.  After the DOL let the appeal deadline lapse, the AARP and attorneys general of California, New York, and Oregon filed motions in late April seeking standing as defendants in the case. The motions were denied by the same three-judge panel that made the March 15 decision, effectively putting an end to the DOL rule (barring a successful appeal to the Supreme Court).  With the DOL rule out of play, the industry’s focus is likely to turn to the newly-released SEC advice rule.

SEC Advice Rule: Here’s What You Need to Know

by Greg Iacurci

The SEC officially proposed its investment-advice rule on April 18, marking a major step towards unifying the standards of broker-dealers and investment advisers.  The proposal would create an obligation that brokers act in the “best interest” of retail clients.  Such obligation is similar to, but falls short of, the fiduciary standard to which investment advisers are held.  The proposal would also reform titles, prohibiting broker-dealers from calling themselves “advisers” or similar terms.  Notably, brokers at hybrid BD/RIAs would be exempt from the title reform.

SEC Warns Advisers to Toe the Line on Fees

by Jeff Benjamin

The SEC’s Office of Compliance Inspections and Examinations issued a risk alert on April 12 detailing the most frequent advisory fee and expense compliance issues identified in deficiency letters sent to SEC-registered RIAs. Such issues included fee-billing based on incorrect account valuations, applying incorrect fee rates, and disclosure issues involving advisory fees.  The key takeaway is that advisers should review their practices, policies, and procedures to ensure compliance with their advisory agreements, Form ADV disclosures, and representations to clients.

4 Trends Reshaping Broker Recruiting

by Emily Zulz

Broker recruiting will continue to be influenced by several trends, including the potential collapse of the broker protocol after Morgan Stanley and UBS departed late last year and the rising prominence of independent RIAs and BDs.

RIAs Not (Yet) Facing Fee Pressure

by Tobias Salinger

The fee pressure on asset managers and broker-dealers has had a lesser impact on financial advisers, who have been able to justify fees with the “value-add” from holistic planning services.  With significant pricing pressure across the supply chain, it may just be a matter of time before fee pressure hits advisers as well.

Picking a New Broker-Dealer?  Here’s How to Do it Right This Time

by Nina O’Neal

As the industry has evolved to become more about fee-based accounts and less about product sales, many RIAs have moved to a hybrid model with dual registration as a broker-dealer and RIA.  This shift has altered the relationship between RIAs and broker-dealers; as a result, many broker-dealers have reinvented themselves.  O’Neal offers practical considerations for choosing a new broker-dealer, including stability, cultural fit, ownership, leadership, and succession planning.

In summary, the DOL fiduciary rule that dominated industry headlines for months is now (likely) down and out, and the newly-proposed SEC advice rule has taken center stage.  On the recruiting side, broker protocol remains in a precarious position after Morgan Stanley and UBS left late last year. With the growing prominence of independent RIAs causing wirehouse advisers to jump ship, more Wall Street banks may defect as a way to dissuade advisors from leaving.  Stay tuned for next week’s post for more perspective on broker protocol and how we think it will evolve.

Mercer Capital’s RIA Valuation Insights Blog

The RIA Valuation Insights Blog presents a weekly update on issues important to the Asset Management Industry. Follow us on Twitter @RIA_Mercer.