RiskTech Forum

Capco: Wealth Management Responses to the Evolving Fiduciary Landscape

Posted: 1 October 2017  |  Author: Heather Johnson  |  Source: Capco

In 2017, the U.S. fiduciary regulation landscape continues to surprise the industry. The implementation date of the ground-breaking DOL (Department of Labor) Fiduciary Rule1 was pushed back by 18 months, to mid-2019. Meanwhile, Nevada passed fiduciary legislation that became effective within a month of being signed.

Wealth management firms have struggled with compliance in this quickly evolving fiduciary landscape. Buzzwords like “conflict-free advice” and “best interest” have reached mainstream audience, as financial advice continues to be the subject of intense debate. In the face of such uncertainty, many firms are shifting from specific rule compliance to embracing higher standards overall for their clients.


With reservations surrounding the DOL’s Fiduciary Rule, some states have started to fill the void. On June 2nd, 2017, Nevada Governor Brian Sandoval signed the Senate Bill 383, mandating that all advisors uphold “the fiduciary duty toward a client."2; This amendment sent many wealth managers scrambling to comply.

The Nevada bill not only extended “fiduciary duty” to both brokers and investment advisors but it also went into effect less than a month after being signed. Under the rule, financial advisors must disclose any profit or commission received from clients and make a "diligent inquiry"3 about clients’ holistic goals. Many wealth managers were not prepared to comply with the tremendous tasks of building fee disclosures and training advisors in such a short time span.


Mounting pressure on legislators to protect consumers’ financial interests coupled with the DOL’s failure to fully implement a fiduciary standard has led to many states becoming more aggressive in implementing their own legislation. Nevada’s Bill 383 demonstrates the singular power of states to take matters into their own hands and implement hard-hitting changes at lightning speed. Wealth management firms must now be alert to both federal and state level regulatory change or risk quickly becoming noncompliant.

Current pending legislation points towards a push for greater fee disclosures and transparency around fiduciary statuses. Bills such as New Jersey. A. 2979 / S. 2240 would require non-fiduciary investment advisors to disclose to clients whether they had a fiduciary relationship with the client and if the law required them to act in their client’s best interests. In New York, A. 2464 calls for greater levels of disclosure by non-fiduciaries that provide investment advice.


In stark contrast to recent state legislative change, the monumental DOL Fiduciary Rule has yet to take full effect. Over the past few years, many in the industry have focused on complying with DOL specific rules, including providing a best interest contract to clients and designating a conflicts officer.

However, the latest 18-month delay of the DOL Fiduciary Rule was yet another speedbump on the turbulent path of federal regulation enactment. In addition to the delay, many in the industry also expect that changes to the final DOL rule will potentially allow transactions that were previously banned.  In response to this, many firms have turned their focus from complying with specific DOL rules to enhancing client standards of care overall to meet fiduciary requirements.


The industry is now looking to the SEC (U.S. Securities and Exchange Commission) for the next major change. On June 1st, 2017, the SEC Chairman Jay Clayton issued a statement that he intended to work with the DOL Secretary Alexander Acosta to conduct a formal assessment of “possible future actions.” He asked for “robust, substantive input” from retail investors and other interested parties to assist in the SEC’s ongoing analyses of investment advisor’s standards of conduct.4 The SEC asked for comments specifically regarding key questions such as: Are conflicts of interest related to the provision of investment advice being appropriately identified and addressed?


Determining one standard of care for investment advisors and brokers-dealers alike has proven to be a daunting task for both state legislators and federal regulators. In addition, investment advice and its delivery methods have recently undergone massive change due to significant technological disruptors. The SEC Chairman Jay Clayton noted this difficulty when he discussed the SEC’s efforts to regulate as illustrating “the complexity of the issues as well as the fast-changing nature of our markets, including the evolving manner in which investment advice is delivered.” 

As the DOL Fiduciary Rule faces pressure and other actors begin to effect change, many firms are moving towards implementing their own version of a higher standard of care. This includes greater transparency in fee disclosures, enhanced supervision of investment advice, and training advisors to work in their clients’ best interest. These firms have decided that the best defense they have against the uncertainty of further regulation is to always be one step ahead.