The Securities and Exchange Commission, the Labor Department and other regulators could keep financial advisors and wealth management firms quite busy with compliance this year.
While the same could be said for almost any year, 2024 presents an additional layer of uncertainty due to the fact that the election may sweep away the recent flurries of new potential regulations if new parties take over the White House and Congress.
To help make sense of the proposals and other regulatory issues affecting the industry, consultant Duane Thompson of the Potomac Group spoke with Financial Planning after compiling a list of the most pressing areas this year as part of last month’s issue of the Investments & Wealth Institute’s “Washington Insights” journal. The report includes predictions “based solely on the author’s 35 years of experience involving policy issues,” Thompson wrote in an endnote. The key takeaways are in the slideshow below.
“Financial advisors and wealth managers are typically fiduciaries and must know the legal and regulatory boundaries in which they operate,” Thompson said in an email. “Of course, much of the focus is on acting in the client’s best interest, but that also requires knowing the law and avoiding or managing conflicts of interest in a manner that benefits the client over the firm’s financial interests. This requires staying current with a best interest standard as currently articulated under the law, in regulation and judicial precedent.”
Labor’s retirement-advice proposal represents the pending rule that’s “probably the most pervasive” in terms of its impact, even though planners from registered investment advisory firms who already operate as fiduciaries may not see as big of a change as other industry professionals, he said. Regardless, the election, possible action to block the proposal by Congress under the Congressional Review Act (CRA) or industry court challenges could still throw the rule in the trash bin in the end. A 2018 appeals court decision vacated the agency’s last effort to extend more fiduciary duties to retirement advice.
“If the rule is generally approved as proposed, I think the DOL has a persuasive argument to make in the next round of litigation,” Thompson said. “The Department’s lawyers will likely argue that if a relationship of trust and confidence has been established between the client and the advisor, or the firm in general offers fiduciary advice in addition to selling investment products, those facts and circumstances would suggest that the firm and advisor have fiduciary responsibility and do not solely act in a buyer-seller relationship. The problem for the DOL is that when industry groups inevitably file court challenges, the Fifth Circuit is once again the most likely forum and the best chance for opponents to overturn the rule.”
Scroll down the slideshow to see 10 key regulatory proposals and issues that could affect financial advisors in 2024 and future years. For more coverage of the Labor Department’s pending “retirement security rule” proposal, follow these links:
Note: The below predictions come from the January 2024 issue of the Investments & Wealth Institute’s “Washington Insights” journal. The institute is an education, networking and certification organization that doesn’t advocate for particular policies. The firm where Thompson is president, Washington, D.C.-based legislative and regulatory consulting firm Potomac Strategies, compiles the research on the group’s behalf. Thompson rated the likelihood of each proposal going into effect, with five stars for the highest odds and one for the lowest.
