September 2021 Issue: What does the Current Regulatory Environment Mean for NAPFA Members?-What does the Current Regulatory Environment Mean for NAPFA Members? by Dan Moisand

What does the Current Regulatory Environment Mean for NAPFA Members? by Dan Moisand

Pdf Summary

The regulatory environment for financial advisors has been busy in recent years, with various rules and regulations being introduced and challenged. The Department of Labor (DOL) initially released a fiduciary rule, but it was defeated in court by the brokerage industry. The DOL then revised the rule. Several states also implemented their own fiduciary rules, leading to lawsuits. The New York Supreme Court Appellate Division struck down Insurance Regulation 187, a "best interest" regulation for insurance and annuities in New York. The Securities and Exchange Commission (SEC) adopted Regulation Best Interest, which requires a new form called Form CRS and states explicitly that it is not a fiduciary standard.<br /><br />These regulatory developments present challenges for financial advisors. One challenge is managing the additional operational burdens. The DOL rule, for instance, reintroduced documentation requirements for rollovers, requiring advisors to formalize the use of evaluation tools. The new Form CRS also adds to the paperwork burden, requiring repetition of information already disclosed in Form ADV and using language that does not clearly differentiate between different business models.<br /><br />The confusion caused by the regulatory environment also poses a challenge in helping the public understand the differences between advisors and salespeople. The use of terms like "best interest" can be deceptive, and the SEC's declaration that its best interest standard is not a fiduciary standard further blurs the line between advice and sales.<br /><br />However, amidst these challenges, there is an increased demand for fiduciaries and fee-only advisors who do not switch between roles. The regulations and confusion have contributed to more clients seeking out fee-only fiduciaries. The updated standards from the Certified Financial Planner (CFP) Board, requiring a commitment to act as a fiduciary, will further professionalize financial planning and benefit NAPFA planners.<br /><br />Despite setbacks and confusion, the movement towards professionalization in financial planning remains strong. Financial advisors should stay informed about important policy matters, comply with regulatory requirements, minimize conflicts of interest, and obtain informed consent from clients.

Keywords

regulatory environment

financial advisors

fiduciary rule

Department of Labor

brokerage industry

state fiduciary rules

Insurance Regulation 187

Securities and Exchange Commission

Form CRS

fee-only advisors