An interesting debate is taking place south of the border around a possible new application of “fiduciary” duty to advisors and the investment advice they offer to clients.
The Labor Department, which oversees retirement plans, was supposed to offer up a ruling on a new requirement around fiduciary duty in August. But the deparment just announced that ruling will not come until January. The delay is, apparently, the result of “fierce pushback” from the financial services industry.
In the U.S. the Employee Retirement Income Security Act, or Erisa, defines when investment advisers become fiduciaries. Some in the Labour Dept. want to see the rule tightened to avoid situations such as that of Enron, when employees were shuttled into Enron stock leaving many employees broke when the company collapse. The Labour Dept. introduced a change increasing fiduciary responsibility on advisor in I 2010. But the rule was rescinded the following year after criticism from the Securities Industry and Financial Markets Association and the Financial Services Institute.
The industry organizations argued such shifts would create huge, unsustainable shifts in the advisory industry. Revenue sharing, where mutual fund companies share a portion of their revenue with the brokerage firm selling the fund, would have been outlawed.
Another part of this debate: Dodd-Frank, the financial regulatory bill, gives the Securities and Exchange Commission the authority to propose a rule that would require brokers to act as fiduciaries. Though, the SEC seems to be resisting such a move. A Republican commissioner at the S.E.C., Daniel Gallagher, a said in March that he was not sure a majority of the commission believed a stronger rule was necessary. "It is still very much an open issue," he has been quoted as saying.
The great debate goes on.