Compliance August 26, 2016

Financial Planning Coalition Stands With DOL in Court Battle

The Financial Planning Coalition filed a “friend of the court” brief supporting the Department of Labor in its ongoing court battles over the new fiduciary rule. 
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The Financial Planning Coalition, comprising the Certified Financial Planner Board of Standards, Inc. (CFP Board), the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA), filed an amicus brief in the U.S. District Court for the Northern District of Texas, supporting the Department of Labor’s (DOL) fiduciary rule and opposing efforts to stop the rule from taking effect.

In its amicus brief, the coalition specifically notes their “strong opposition to the current attempt to stop the rule through a court challenge.” The coalition submits that the experiences of its professionals and their clients show that a broadly applicable fiduciary standard represents a win-win for the industry and the public. In short, the coalition argues that the business success of its members, who are generally held to very strict standards of conduct in terms of conflicts of interest, prove in advance that the stricter fiduciary paradigm will not in itself stifle innovation or quality service. 

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“The current regulatory framework … fails to align advisers’ interests with investors’ by leaving open significant loopholes that allow for the sale of financial products that may not be in the best interests of the investor,” the coalition writes. “The Department of Labor’s strengthened fiduciary rule is therefore necessary and appropriate to protect the public.”

The brief centers around three critical points of argument. First, the coalition argues, investors currently suffer from a lack of complete, truthful disclosures, and this is having a measurable negative effect on retirement outcomes. Second, “empirical research and the coalition’s own practical experience confirm that middle income investors will retain ready access to professional financial advice under a fiduciary standard of conduct.” And finally, based on CFP professionals’ experience under internal standards similar to those required by the Best Interest Contract Exemption, the coalition argues the rule provides “a workable solution to allow for advisers to receive transaction-based compensation while providing advice that is in the best interests of the client.”

“The coalition’s experience—involving nearly 80,000 financial-planning professionals of all business models and sizes—offers a reality that starkly contrasts with the speculation from the rule’s opponents, and provides the court with a unique perspective on the issues in this case,” the amicus brief states. “Thousands of CFP professionals and FPA and NAPFA members across the country currently provide fiduciary-level services to investors with business models requiring no or very low minimum assets under management.”

The full brief, which offers considerable detail on the success of advisers working under the auspices of the Financial Planning Coalition, is available in full online. 

Products August 26, 2016

Edward Jones Maps Out Fiduciary Rule Response

The investment advisery firm Edward Jones says it will look to grandfather IRA relationships acquired before April 2017, while also instituting some fundamental changes to process and product to comply with the new fiduciary rule for ongoing and new relationships.
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Like many other advisory firms and retirement plan services providers, Edward  Jones is starting to roll out its formal response to the Department of Labor (DOL) fiduciary rule.

The firm tells PLANADVISER it will look to grandfather individual retirement account (IRA) relationships acquired before April 2017, while also instituting some fundamental changes to process and product to comply with the rule within ongoing and new client relationships.

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Much of the change is focused on the IRA market. As the firm explains, investments in existing IRAs serviced by Edward Jones, “as well as systematic investment plans that are in place before April 10 of next year,” can continue as long as they remain in the best interest of clients. “New investment purchases won’t be allowed in a grandfathered account after the rules become effective with the exception of mutual fund exchanges, variable annuity subaccount reallocations, and systematic investment plans agreed to prior to implementation. “

Instead, the firm “will create a transaction-based IRA option using the Best Interest Contract Exemption.” Initially, this will include stocks, bonds, CDs and variable annuities, the firm says. “For now, it will not include ETFs, UITs or mutual funds.”

“Right now, because there is such  pricing variability within and between mutual funds, it is difficult to align mutual funds with the requirements of the Best Interest Contract Exemption,” the firm explains. “We believe in the future the mutual fund industry will need to align around common pricing and common structures in order to meet the DOL fiduciary standard.”

NEXT: A difficult decision  

Edward Jones is unequivocal that this decision was not made lightly, “but it was made in the best interest of our clients, our branch teams, and our firm.”

Additional features expected to be implemented within the transaction-based IRA include an individual investor minimum of $100,000 in qualified assets. The exception will be for variable annuities, where the minimum will be $10,000.

“The $100,000 minimum is because a fiduciary standard requires diversification,” the firm says. “We believe the $100,000 minimum will allow for proper diversification given the products available in a transaction-based account in the future.”

The firm is also making some internal-facing changes “to further enhance our fee-based choices and in response to client feedback.” As of August 20, the new minimum for the firm’s Guided Solutions Flex account, which allows for non-discretionary investments in stocks, bonds and mutual funds and ETFs, will be reduced from $100,000 to $25,000 for clients who want to purchase stocks and to $50,000 for clients who want to purchase individual bonds in their account. Related to this, the new minimum for the firm’s Advisory Solutions account, which allows for program investing in mutual funds and ETFs, will be reduced from $50,000 to $25,000.

Finally, the Guided Solutions Fund account, which allows clients to purchase mutual funds and ETFs with a minimum of $5,000, isn't changing, “and that account is now broadly available to branches and clients.” The minimums will apply to all client accounts that are investing in these solutions, including traditional and Roth IRAs, and non-qualified accounts.  

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