Breaking News: Fiduciary Duty Rule NOT Deleted by Trump


Were the reports profiling Trump’s ‘executive order’ that repealed the long-planned Dept of Labor implementation of a new fiduciary rule for investment advisors fake news?? Apparently Mr. Trump, along with whoever on his staff is drafting his first 100 days edicts in rapid fire fashion, as well as financial news media wonks and likely a whole bunch of other folks who thought that Trump was trumping the introduction of more regulations on the financial industry were all wrong. According to Michael Kitces of industry publication Bank Investment Consultant, it turns out that  The Fiduciary Rule was NOT Deleted by President Trump.

(Bank Investment Consultant) Feb 5 2017–Once President Trump won the election, it was widely believed it would be a matter of time before he issued an executive order to delay April’s rollout of the Department of Labor’s fiduciary rule.

Yet, the final version of the memorandum that the president signed on Friday did not match the originally circulated draft and it did not actually include a provision to delay the regulation after all, despite wide reporting to the contrary.

In fact, the final issuance was not an executive order at all, but a presidential memorandum. The key difference was that the section that would have proclaimed a 180-day delay for the fiduciary rule was eliminated, along with any direct guidance to the Department of Labor about seeking a stay to the rule given the ongoing lawsuit.

You can see the text here: Presidential Memorandum on Fiduciary Duty Rule..

Notably, nothing in the final version of this memorandum actually delays the fiduciary rule. (It appears that the original plan to seek a delay had been to rely on the authority of 5 USC 705 to postpone the effective date of the rule. However, the final rule already went effective last year, technically on June 7th of 2016, after the requisite 60-day review period under the Congressional Review Act had closed.)

The looming April 10 date is merely the applicability date on which key provisions of the rule will be enforced. There is no legal authority to delay.

Instead, the memorandum actually directs the Labor secretary to undertake a new “economic and legal analysis” to evaluate whether the looming applicability date of the fiduciary rule has harmed investors through to a reduction of Americans’ access to retirement products and advice, whether it has resulted in dislocations of the retirement services industry (that may adversely affect investors), or whether the rule is likely to cause an increase in litigation and the prices that investors must pay to gain access to retirement services.

To the extent that the new analysis reveals problems, the Labor secretary is directed to “publish for notice and comment a [new] proposed rule rescinding or revising the rule.”

In other words, all President Trump has actually done is to direct the Labor secretary to begin a new rulemaking process. team of capital markets experts and international securities lawyers specialize in preliminary offering prospectus, secondary offering prospectus and full menu of financial offering memorandum document preparation.

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The reality is that conducting such an analysis, and issuing a new proposal, and running a notice-and-comment period, is no small feat.

Bear in mind that the DoL issued its proposed rule in April of 2015, and took almost exactly a full year to complete the notice and comment period, gather the feedback and issue a final rule.

Also, bear in mind it took 4.5 years to develop that proposed rule, from the original proposed rule in the fall of 2010 (which in turn had its own notice and comment period).

It took the DoL about 5.5 years to issue a final rule. Yet, in this case, the DoL has almost exactly two months.

In other words, it took the DoL about 5.5 years, across multiple phases, to issue a final rule.

Yet, in this case, the DoL has almost exactly two months. And President Trump’s Labor secretary nominee, Andrew Puzder, still hasn’t even been confirmed. The Wall Street Journal reports his confirmation hearing has been delayed “indefinitely” due to questions about his ethics and financial paperwork. At the same time, Anthony Scaramucci, who was advocating against the rule, may not get the top role advising President Trump as was previously expected. That means, the timeline is not only very tight, but it may not even be clear who’s leading the charge.

Notwithstanding this challenge, Acting Secretary of Labor Ed Hugler did issue a brief statement just hours after President Trump signed the official memorandum, stating that the DoL “will now consider its legal options to delay the applicability date.”

As it stands today, the rule still has not been delayed, and the White House appears to have directly acknowledged that it doesn’t have the authority to delay the rule at this point.

Still, as it stands today, the rule still has not been delayed, and the White House appears to have directly acknowledged that it doesn’t have the authority to delay the rule at this point, given its decision to remove the 180-day delay language from the final version the president signed.

There are still a few potential tactics that could result in at least a partial delay.

1) Invite a stay from the court on one of the pending lawsuits. The first option: The DoL, facing lawsuits, could invite the court to stay the case – and potentially the rule, ostensibly while it further formulates its legal defense and/or begins to go through the proposal and notice-and-comment periods. The end result might be at least a temporary delay in the applicability of the rule.

However, there is still debate about whether this could actually delay the applicability date (or just the legal proceedings up until the applicability date hits), and this legal tactic could not be used indefinitely. In some reasonably timely manner, the courts would still expect the case to resume. While the tactic might be attempted, it’s still unclear whether the stay could last long enough to actually undertake the requisite economic and legal analysis, to draft a new proposed rule, to complete the notice and comment period, and actually finalize a new alternative version of the rule (or rescind it altogether).

In addition, a ruling is expected in the coming week on what is arguably the biggest DoL fiduciary lawsuit, a consolidation of those filed by the U.S. Chamber of Commerce, SIFMA, ACLI, NAIFA, and more… and obviously, requesting a stay in the case is a moot point once the ruling is issued.

2) An expedited proposed rule that suspends/extends applicability date. The second option is that the Labor Department could try to hurry through its economic and legal analysis, and then quickly proposed a revised rule making perhaps just minor changes… including pushing back the applicability date. This would still appear to require the DoL to issue public notice and complete a comment period, and then get a final rule issued, all by April 10th, which may not be administratively feasible. Or at least, to complete its legal and economic analysis (perhaps focusing on the “easiest” point of contention, which is the third clause about the fiduciary rule causing an increase in litigation), issue a proposed rule for notice and comment, and then try to delay the applicability date of the old rule pending completion of the notice and comment period of the newly-proposed rule.

Overall, the biggest problem to delaying the rule remains that all of these strategies take time.

Pushing through a rule change so quickly, though, even if just for a change as minor as an adjustment to the applicability date, invites at least the potential of a legal challenge from the fiduciary advocates that the change was too hasty, arbitrary and capricious, and in violation of the Administrative Procedures Act; after all, many industry companies are suing the DoL claiming that its 5.5 year rulemaking process since 2010 was “too hasty”… so it would be more than a little ironic for the DoL to now complete a rule-change process (which includes a delay) in barely two months.

Expect a lot of people on both sides of the issue to be scrutinizing the Administrative Procedures Act, trying to figure out exactly how far into a new rulemaking process the DoL has to go in order to legitimately delay the applicability date of the already-effective rule.

3) A legislative fix from Congress. The only other viable option to entirely halt the rule would be an act of Congress. However, the Democrats still have enough votes in the Senate to filibuster the legislation. And with Sen. Elizabeth Warren issuing a letter to banks asking whether any have proceeded far enough in their fiduciary implementation that they’d like it to move forward without delay, and re-issuing its report cataloguing the “salacious” sales incentives/prizes offered to annuity agents selling into retirement accounts, it appears that the Democrats are still prepared to fight to keep this particular rule on the books (especially since there’s a clear endgame – they just have to make it to the April 10th applicability date, and then all firms will have had to comply, and legislation to delay the applicability date will be a moot point).

Overall, the biggest problem to delaying the rule remains that all of these strategies take time, and with the final applicability date just two months away, financial institutions have to continue to fully prepare for the possibility that the rule won’t actually be stopped.

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Broker-Dealers: CAT Got Your Tongue?


Broker-Dealers are continuing to add to their compliance and regulatory ‘need-to-do’ checklist and in a recent SIFMA submission to the SEC, the list of items under the category Consolidated Audit Trail aka CAT compliance is only growing longer.  One senior compliance officer representing a regional broker-dealer went so far as to suggest that when questioning a staff member as to the status of a recent technology upgrade to the audit trail system, he received a blank look in response and found himself asking, “What’s wrong? Cat got your tongue?”  The staffer replied, “Not my tongue, my b-a-#-@-s!”

Below, courtesy of Traders Magazine’s Patrick Flannery, please find find a consolidated view of what broker-dealers are now contending with in terms of implementation challenges.

For broker-dealers, the Consolidated Audit Trail (CAT) may seem to be another weighty technical challenge, whose cost and implementation challenges will fall disproportionately on their shoulders (and their budgets). In fact, last week, SIFMA submitted a letter to the SEC detailing exactly how burdensome CAT will be.

The current plan, according to SIFMA, “would impose the vast majority of CAT-related costs on broker-dealers.” In its letter to the SEC, the US lobbyist asked the agency to demand that the parties developing CAT, namely, the exchanges and FINRA, explain how they justify requiring “broker-dealers to bear any of the financial burden of funding a system that exists to receive and process information that broker-dealers are required to report under SEC regulations.”

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What’s more, while the data submitted to CAT will give regulators better oversight, which is expected to help promote market fairness, several securities industry insiders have begun to question what type of access broker dealers will have to this data.  As we understand, it’s unclear at this point whether broker-dealers will to be able to directly query the very data that they must bear the burden (and cost) of collecting and reporting.

Despite these challenges, things may not be as bad as they seem. For those who learn to understand the value of the data they’re collecting, and how it can be mined for market insight, there’s potential for significant upshot.

The Heavy Lifting

CAT will be a much more detailed and sophisticated form of audit trail than FINRA’s OATS system, to which firms currently report data for regulatory oversight purposes, and as a result, reporting requirements will be significantly more complex. The data that CAT will consolidate is voluminous, and for many firms, who have this data stored in disparate systems, gathering, organizing and time stamping CAT data for reporting purposes will be a substantial if not a near-colossal undertaking.

Some aspects of CAT reporting are so challenging it’s hard to see the bright side. For example, every broker-dealer, exchange and all other self-regulatory organizations (SROs) reporting to CAT will have to establish and maintain a system of unique IDs for customers, accounts, counterparties and orders. The ultimate goal:  the entire life cycle of any equity or options order can be preserved for future review. A trade, originated through a retail broker, e.g., that is routed through a broker-dealer and executed on an exchange, should be able to be stitched together and reconstructed from CAT data so that the full picture is viewable from multiple perspectives.

When an original order is received, firms will have to capture and report an ID number of the customer originating the order, a CAT order ID, an identifier of the firm receiving the order, terms of the order and a time stamp measured to CAT time-stamping requirements (currently 50 milliseconds).

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FINRA Chief Honcho Calls It Quits

FINRA Chairman Richard Ketchum

FINRA CEO Richard Ketchum will retire from the brokerdealer industry’s self-regulatory organization by the latter part of next year.

According to coverage from, FINRA’s board of governors is expected to look internally and externally for a successor.

Ketchum has been a critic of the Department of Labor’s proposal for a fiduciary standard for the wealth management industry. In May, he warned that the proposal comes with inadequate guidance to help firms navigate conflicts and ensure that they are engaging in appropriate compensation models when serving retirement plans or individual investors. maintains the global financial industry’s most comprehensive database of broker-dealers operating in more than 30 countries across the world.

Ketchum, 64, came to FINRA in 2009 from the New York Stock Exchange, where he was CEO of NYSE Regulation, and in the aftermath of the financial crisis. The industry veteran’s career includes 14 years with the SEC, where he was director of the Division of Market Regulation for more than half of his tenure with the agency.

“He worked tirelessly to protect and educate investors while also improving the integrity of the markets,” SEC Chairwoman Mary Jo White said. “Investors are better protected and our markets are stronger because of Rick Ketchum.” Ketchum continues to serve as a member of the SEC’s Market Structure Advisory Committee.

FINRA’s lead governor, Jack Brennan, praised Ketchum “as a champion of initiatives such as the High Risk Broker program, improvements in BrokerCheck, the expansion of TRACE reporting of asset-backed securities, and the expansion of FINRA’s responsibilities across stock and options trading.”

During his tenure at FINRA, Ketchum said in a statement that the organization’s accomplishments were based on a “commitment to excellence in our core competencies: examinations, enforcement, rulemaking, market transparency and market surveillance.”

“Investor protection is our principal reason for being, and I have been honored to work with an incredibly dedicated and talented group of professionals who take this vital mission seriously,” he said.

SIFMA CEO Kenneth Bentsen Jr. said Ketchum was at the forefront of every major milestone in the evolution of the U.S. securities markets over the last 40 years. “He has made his mark in ensuring a robust, efficient and pro-investor marketplace, and we wish him all the best in his retirement,” Bentsen said.

BrokerDealer Fiduciary Standards and White House Leak: “I’m Shocked!” Says Frmr SEC Honcho Schapiro blog is not as easily shocked as former SEC Chair Mary Shapiro seems to be, but then again, Ms. Shapiro left the SEC top job a mere two years after being appointed.

This update is courtesy of

A leaked White House memo supporting a fiduciary definition for brokers selling retirement investments proposed by the Department of Labor was “pretty shocking,” according to former SEC chairwoman Mary Schapiro.

But in a discussion of industry issues at the NICSA Strategic Leadership Forum, Schapiro said that there was no clarity as to how the regulator would handle the proposal.

“It’s a muddled mess,” Schapiro said.

The memo, which was first reported by The Hill, states that there was evidence that “the current regulatory environment creates perverse incentives that ultimately cost savers billions of dollars a year.” The memo is in support of a proposed fiduciary definition for professionals selling retirement investments to 401(k) beneficiaries under the Employee Retirement Income Security Act.

Schapiro said it is difficult to understand how the proposal will ultimately be received by the SEC, as it has its supporters and detractors within the commission. “The issue is politically difficult within SEC,” she said.

Those who do not see any benefit for the proposal note that broker-dealers are already subject to more stringent regulation and scrutiny than financial advisors, Schapiro said.

She added that if the SEC does throw its support behind the proposal, it might cause SIFMA to walk away from its support of a fiduciary standard.

SIFMA believes the DOL proposal “is an overbroad expansion of the fiduciary standard,” but it does support a uniform fiduciary standard.

Raymond James Financial CEO Paul Reilly is among the industry executives against the proposal, calling it in a recent email to employees “an example of biased and distorted research (that) impugns the integrity of the work our advisors do every day to help clients achieve their financial goals.”

Schapiro said the goal in helping investors gain a better understanding of their investment options was valid. “We have to make things easier for investors one way or another,” she said, but predicted more debate before any resolution on the fiduciary standard matter.

“It’s completely unclear where it will go, but it will continue to be a fight,” she said.


BrokerDealers Battle Their Own Regulator: Sifma v. Finra Over Privacy blog update courtesy of The New York Times’ Susan Antilla.

Finra has proposed a new plan that requires brokerdealers to share extensive information about their clients’ accounts and brokerdealers are not happy about it.

The proposal by the Financial Industry Regulatory Authority, or Finra, is “a troubling and serious threat to investors’ civil liberties and constitutional rights,” Carrie L. Chelko, chief counsel of the Philadelphia financial firm Lincoln Financial Network, wrote in one of hundreds of letters to the agency criticizing the plan.

Finra argues that regular, monthly reports from brokers detailing purchases, sales, margin calls and risk profiles will give it a chance to stop abusive practices before further harm is done.

Finra is considering the feedback on its plan, called the Comprehensive Automated Risk Data System, or Cards, and making changes in advance of seeking approval from its board of governors and forwarding a proposal to the Securities and Exchange Commission, Finra’s chief executive, Richard G. Ketchum, said in a telephone interview.

Finra has often been dismissed as an apologist for the Wall Street firms that finance it, but it has made some efforts since the financial crisis to play a tougher role. It fought the discount brokerage firm Charles Schwab & Company in 2012 after the firm tried to force customers to waive their rights to bring class-action lawsuits, winning its case last April. It also strengthened its standards for brokers who are making investment recommendations, advising them that a product must be consistent with a customer’s best interest. Several powerful investor advocacy groups, includingAARP and the Consumer Federation of America, have applauded Finra’s plan, noting that it would allow agency regulators to match the 21st-century data capabilities of the Wall Street firms it regulates. But the brokerage firms that pay Finra to be their regulator say that keeping so much investor information in one place is an example of regulatory overreach and an invasion of customers’ privacy.

“Not a week goes by without some data breach being reported in the press,” Ira D. Hammerman, general counsel of the Securities Industry and Financial Markets Association, a Wall Street lobbying group known as Sifma, said in an email response to questions about Finra’s plan. “And if Cards is built, the question is when, not if, there will be a data breach.”

In December, the American Civil Liberties Union wrote to Finra to express its “very serious security and privacy concerns” about Cards.

Mr. Hammerman and other critics have said that Finra’s plan would invade investors’ privacy, put personal information at risk, take supervisory authority away from brokerage firms and put small brokers out of business. After Sony disclosed in December that its systems had been hacked, Mr. Hammerman even took the opportunity during a media interview to liken Sony’s predicament to the risks that Cards would pose.

Barbara Roper, director of investor protection at the Consumer Federation of America, said Wall Street was “using every tool in their toolbox.” She added, “Their reaction is so over the top that the only thing I can see is that they just don’t want their regulator to be able to keep an eye on them.”

Given Finra’s reputation among some critics, Ms. Roper said, the aggressive Cards proposal has taken some Wall Streeters by surprise. “The industry sees this as evidence of Finra becoming less of a lap dog,” she said.

Mr. Ketchum said that the proposal would make it possible for Finra to spot patterns that suggest bad behavior by a brokerage firm, a branch office or an individual broker.

Dishonest brokers do not usually take advantage of only one client, Mr. Ketchum said. Instead, “they fall in love with a product or they fall in love with a strategy and they put tons of people in it.” Thus, a comprehensive database that displays all of the activity at a firm or branch can help Finra zero in on abuse, he said.

Ms. Roper said the program would let Finra jump on problems more quickly. “It creates a real deterrent,” she said. “Who’s going to churn an account if it immediately sends off a warning siren at Finra?”

In objecting to Cards, the securities industry has been most vocal about the potential for a vast repository of investor information to be hacked. After perusing the data security objections raised in a first round of comment letters in early 2014, Finra revised its proposal and said that customers’ names, addresses and tax identification numbers would not be included.

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