Another Hearing on – and Attempted Repeal of – the Fiduciary Regulation

Yet another piece of legislation is being readied to repeal the fiduciary regulation.

This particular bill has been crafted by Rep. Ann Wagner (R-MO), no stranger to legislative efforts to roll back the fiduciary regulation. She introduced legislation to repeal the fiduciary regulation in 2015. The House passed Wagner’s Retail Investor Protection Act (H.R. 1090) in October 2015, but it wasn’t taken up by the Senate.

Aside from repealing the fiduciary regulation right up front, the draft text of the bill indicates that brokers would have to provide recommendations that “reflect reasonable diligence, care, skill and prudence,” and they would also have to disclose at the point of sale their compensation and “any material conflict of interest.”

The draft bill requires that a broker or dealer (or registered representative) “avoid, disclose or otherwise reasonably manage any material conflict of interest with a retail customer.” The draft requires, among other things, that a broker-dealer must act in the retail customer’s best interest when providing a recommendation that must:

  • reflect reasonable diligence; and
  • reflect the reasonable care, skill and prudence that a broker-dealer would exercise based on the customer’s investment profile.

The bill also imposes what are described as “enhanced disclosure obligations on broker-dealers,” while providing the SEC with rulemaking authority “to promulgate the content of such disclosures.”

The legislation would allow brokers to charge commissions and take third-party payments, and would not require a broker to “recommend the least expensive security or investment strategy.” There is an exemption for the sale of annuities, where those sales are covered by an advice standard that is “substantially similar” to the one contained in the bill.

A discussion draft of the measure is on the agenda for a House Financial Services subcommittee hearing slated for July 13 to review the “impact of the Department of Labor’s (DOL) fiduciary rule on the capital markets and the ability of financial advisers, including broker-dealers, to continue providing affordable and reliable retirement investment advice to their customers.”

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