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As some states move ahead with fiduciary regulations, advisers prefer federal rules

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An effort by the federal government to establish nationwide fiduciary rules for investment professionals stalled early in 2018, leading some states, such as New Jersey, to seek unilateral rules that would define how customers interact with the industry.

Concern over a state-by-state approach is one reason that a national set of uniform rules made sense because that would limit a confusing array of regulations, several observers from Pennsylvania noted. They remain hopeful that a nationwide set of standards can be established in 2019.

Under a fiduciary rule, more investment professionals would be obligated to put the best interests of their clients above their own interests. But the experts point out that the exact rules and definitions would determine what that would mean. As part of the Dodd-Frank Act of 2010, the SEC was asked to draft rules but that effort took several turns and has yet to take hold.

Steve Bell, with the Central Pennsylvania chapter of the Financial Planning Association, said a new proposal has been floated in Washington, D.C., that could be adopted in the New Year, but the proposals might fall short of a fiduciary rule.

As a certified financial planner, Bell said, he already acts as a fiduciary when interacting with clients. The goal of a nationwide set of standards would be to hold everyone to an equal duty.

“The position of the Financial Planning Association is that consistent standards are an important part of financial planning,” said Bell, who is with Personal Wealth Advisory in Lancaster. “Professionally, ethically and legally to have the best interests of the client at heart.”

In the current situation, he added, “You don’t quite know what you are going to get.”

A state patchwork?

Bell said moves by states to go their own way could complicate a situation that already confuses consumers.

“I think that would be a shame if we wind up with various state regimens that we would have to adhere to,” he said. “That would make it difficult to know how to comply and to stay up on that. We need some sort of harmonized regime across the country. That would be best.”

Rules to standardize how the industry interacts with clients started with the SEC under the Obama Administration. The initiative was taken over in 2016 by the U.S. Department of Labor, which determined that a fiduciary standard should apply to anyone providing investment advice or recommendations for compensation involving IRAs or worker-benefit plans. The federal courts, however, essentially determined the Department of Labor was acting outside its boundaries. Afterward, the Securities and Exchange Commission again picked up the effort.

When it looked as if the Department of Labor’s rules would go into effect, Pennsylvania Treasurer Joe Torsella issued a statement praising the plan. As state residents take on more responsibility for their own retirement planning, he noted at the time, consistent rules are needed to ensure their best interests arre protected.

Torsella declined to be interviewed, citing through a spokesperson scheduling issues. But he said in a prepared statement that federal rules remain important.

“The fiduciary rule is a necessary measure to protect the public interest and works hand-in-hand in helping to encourage personal savings with protections,” he said.

As for Pennsylvania adopting its own rules, Torsella noted that other states are starting to do so.

Bell and Lon Jury, a certified financial planner with Sylvan Capital Advisors, said they don’t know of any initiatives in Pennsylvania to establish a statewide rule while the debate continues playing out in Washington.

“I am not sure where the momentum would come from in Pennsylvania,” said Jury, who also is a member of the Financial Planning Association.

A clear, concise set of national standards would make the most sense for helping consumers better understand the rules of engagement with investment professionals, said Jury. Sylvan’s service extends from his Lancaster office to Allentown and elsewhere and is part of Ameriprise Financial Services.

Jury thinks measures being discussed in Washington will not satisfy everyone. Those who support a true fiduciary responsibility likely will think any compromise doesn’t go far enough in offering consumer protections, while those who never supported national rules still will think measures go too far, he said.

But Bell and Jury noted that state-by-state rules could lead to unintended consequences, such as national companies pulling products or services from some states because the playing field becomes a minefield, as has been seen with annuity sales.

But Bell isn’t concerned about losing clients to states that go out on their own.

Because he already acts as fiduciary, he said, “If New Jersey passes something, that does not leave me at a competitive disadvantage.”

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