On Wednesday, the SEC finalized rule changes that will broaden its definition of “accredited investor” to encompass industry professionals who have earned certain FINRA licenses. Continue reading
Effective September 5, 2017, for most securities, the SEC will shorten the regular-way settlement period from three to two business days. Continue reading
Effective September 5, 2017, for most securities, the SEC will shorten the regular-way settlement period from three to two business days. This means:
- Securities must be paid for and delivered by two business days from the trade date
- An investor doesn’t become the owner of record of a security until two business days after purchase
The regular-way settlement cycle is often referred to as T+2, which refers to trade date plus two business days.
This shorter settlement period for the trading of secondary market securities has been discussed by the SEC for years. The change is expected to lower margin requirements for clearing agency members, reduce liquidity stress when markets are volatile, and harmonize settlement with European markets, which moved to T+2 in 2014.
This settlement period will not apply to every securities transaction. T+2, like T+3 before it, will apply to:
- Municipal securities
- Exchange-traded funds
- Mutual funds traded through a brokerage firm
- Unit investment trusts
- Limited partnerships that trade on an exchange
This change affects the Series 6, Series 7, Series 24, Series 26, Series 27, Series 28, Series 52, Series 53, Series 62, Series 65, Series 66, and Series 82.
But never fear—Solomon has already updated all study materials to reflect this change.
The securities industry moves fast. Don’t get left behind!
Visit www.solomonexamprep.com or call us at 503-601-0212 for more information about the latest securities exam preparation and education.
Like a groom who finally ran out of excuses, Labor Department secretary Alexander Acosta announced on Monday, May 22, 2017, that the DOL would no longer seek to delay implementation of the Obama-era fiduciary rule. Continue reading
Like a groom who finally ran out of excuses, Labor Department secretary Alexander Acosta announced on Monday, May 22, 2017, that the DOL would no longer seek to delay implementation of the Obama-era fiduciary rule. The rule goes into effect on June 9, 2017.
The fiduciary rule requires financial professionals to put an investor’s interests first—that is, to meet a fiduciary duty—when providing investment advice regarding virtually any retirement plan.
In the past, financial professionals only had to demonstrate that an investment was suitable, which allowed bad actors to recommend expensive investments with high commissions that diminished investors’ retirement savings over time. This is known as conflicted advice, and the Obama White House estimated that it costs investors $17 billion a year.
When the rule was submitted for public comment, the vast majority of commenters were in favor of the proposed regulation.
Opponents of the rule, including the Trump administration, believe that implementation of the rule will raise costs and limit choices for investors.
Secretary Acosta stated that, although the rule will no longer be delayed, the Trump administration “presumes that Americans can be trusted to decide for themselves what is best for them,” indicating that the rule could possibly be repealed or rewritten in the future.
However, those who defend the fiduciary rule claim that average investors, faced with confusing industry jargon, cannot always make the best investment choices for themselves and will benefit from the protection that the rule provides.
The Department of Labor’s fiduciary rule goes into effect on June 9, 2017, but it will not be enforced until January 1, 2018, so firms have until the end of the year to fully implement the required changes.
Once the fiduciary rule is in effect, it will mean more openings for people who have passed the Series 65 or Series 66 exam, which means that now is the perfect time to start studying. Visit Solomon Exam Prep today for more information about our study materials!
The Department of Labor’s fiduciary rule has been subject to more back and forth than an Olympic table tennis match. Will it go into effect? Will it be repealed? Or will it merely be delayed? The answer seems to change from day to day. Continue reading
Update: On March 1, 2017, the Department of Labor proposed a 60-day delay of implementation of the fiduciary rule. The DOL will allow a 15-day comment period before determining whether to finalize the delay.
The Department of Labor’s fiduciary rule has been subject to more back and forth than an Olympic table tennis match. Will it go into effect? Will it be repealed? Or will it merely be delayed? The answer seems to change from day to day. While some groups work toward implementation of the rule, other groups fight against it, questioning whether the Department of Labor even has the authority to issue such a rule.
The fiduciary rule would require financial professionals to put an investor’s interests first—that is, to meet a fiduciary duty—when providing investment advice regarding covered retirement plans.
Let’s look at a brief timeline of the life of the fiduciary rule so far:
February 23, 2015: President Obama called for the Department of Labor to move forward with the creation of rules to limit conflicts of interest regarding investor retirement accounts.
April 14, 2016: The Department of Labor proposed the fiduciary rule, intended to begin implementation on April 10, 2017.
February 3, 2017: President Trump issues an executive order directing the DOL to review the fiduciary rule.
February 8, 2017: A federal district court judge in Texas upheld the Department of Labor’s authority to issue the fiduciary rule.
February 17, 2017: A federal district court judge in Kansas upheld the Department of Labor’s authority to issue the fiduciary rule.
When President Trump issued his executive order, he ordered the Secretary of Labor to provide an “economic and legal analysis” of the rule to answer the following questions:
- Will it reduce investors’ access to a variety of retirement services, offerings, product structures, or other information or advice?
- Has it disrupted the retirement services industry in a way that could harm investors?
- Is it likely to increase the amount of litigation in the industry and thereby cause an increase in prices for investors?
If the Secretary of Labor determines that the answer to any of these questions is yes, it must revise or rescind the rule.
However, many firms are proceeding with their plans to implement the fiduciary rule whether or not the rule as it now exists goes into effect. For example, Merrill Lynch has said it will no longer offer commission-based brokerage IRA accounts. Instead, the firm will offer level fee investment advisory services regardless of the outcome of the fiduciary rule.
Senator Elizabeth Warren of Massachusetts reached out to over thirty leading finance companies, and the overall response from the companies that responded was that they support the fiduciary rule and are prepared to implement it. For example, TIAA wrote, “Putting our clients’ best interests first is a core value at TIAA and, accordingly, we support a best-interest standard,” and Fidelity noted that the firm is “fully prepared to comply with the rule if and when it becomes applicable.”
So even though we don’t know what will be the ultimate fate of the DOL fiduciary rule, it’s safe to say that it has already begun to change the face of the financial industry.
For more information about the DOL fiduciary rule, see our earlier blogpost: https://solomonexamprep.com/news/finra/ready-or-not-here-it-comes-the-dol-fiduciary-rule-2/.
In 2009 the Department of Labor (DOL) began the work of creating what is now known as the “fiduciary rule,” or the “conflict of interest rule.” The goal of the rule is to help protect retirement savings by requiring representatives to only recommend investments that are in an investor’s best interest. Continue reading
This article is available as a downloadable PDF.
In 2009 the Department of Labor (DOL) began the work of creating what is now known as the “fiduciary rule,” or the “conflict of interest rule.” The goal of the rule is to help protect retirement savings by requiring representatives to only recommend investments that are in an investor’s best interest.
The transition period for the rule begins on April 10, 2017, and will continue until January 1, 2018, in order to give broker-dealers and other firms sufficient time to meet compliance standards.
Who Is a Fiduciary?
Almost any broker-dealer or financial advisor who is providing recommendations or advice in regard to 401(k)s and IRA accounts is considered by this rule to be an investment advice fiduciary. This includes (but is not limited to) recommendations given to an investor in a 401(k) plan or IRA account, or the fiduciary of a plan. A plan fiduciary is a person who manages a retirement plan and must put the plan’s interests before his own.
According to the rule, a representative is considered to be giving investment advice regarding a 401(k) plan or IRA if:
- The representative gives a recommendation. No surprise here.
- The recommendation is given for a fee or any kind of compensation. If you don’t get paid for it, it’s not investment advice, according to this law.
- The recommendation regards:
- What to do with an investment. For example: buy, sell, hold.
- How to invest securities or other investments after they are rolled over, transferred, or distributed from the retirement plan or IRA.
- Management of securities or other investments. This includes things like advice about what to add to a portfolio; recommending another investment advisor or manager; and advice about rollovers, transfers, and distributions from a retirement plan or IRA.
The person must also meet at least one of the following criteria to be considered a fiduciary by the rule:
- He represents himself as a fiduciary. Simple enough, right?
- He gives the advice by written or verbal agreement. It doesn’t have to be a formal contract, but it does have to be agreed upon by both parties.
What Constitutes a Recommendation?
In the context of the DOL rule, a recommendation is any communication that could reasonably be considered a suggestion for an investor to pursue or avoid a “course of action.” That means a rep does not have to explicitly tell an investor to make a certain decision in order to give a recommendation.
The more tailored the communication is to the individual, the more likely it will be considered a recommendation. However, simply providing certain services or other general information will not be considered a recommendation.
A person may also provide investment education without this being considered a recommendation.
Variable Compensation and the Best Interest Contract Exemption (BICE)
The DOL rule is known as the conflict of interest rule because it requires representatives to give advice that is in the best interest of the investor, and it prohibits them from being paid for any advice or recommendation that creates a conflict of interest. Variable compensation is one such example of a conflict of interest because reps may push products for which they have the opportunity to be paid more. This includes receiving variable compensation for advice about or transactions in a retirement account.
So what does that mean? It means a rep can’t receive a commission or any other form of compensation that is based on, for example, the size or frequency of transactions.
However, advisers may avoid this prohibition by taking advantage of the Best Interest Contract Exemption (BICE). If advisers meet the requirements of BICE, they may receive variable compensation.
To meet the requirements of the BICE exemption, representatives must:
- Affirm their fiduciary status in writing. This acknowledges that the rep is in fact a fiduciary and the advice was not given in a non-fiduciary (suitability) manner.
- Engage in impartial conduct. This includes:
- Giving prudent advice that is in the customer’s best interest
- Not making misleading statements
- Being compensated no more than is reasonable
- Adopt policies that will mitigate any harm that could come from conflicts of interest. It’s not enough to disclose conflicts of interest. A rep must demonstrate that he is actively preventing his conflicts of interest from having a negative impact on the investor.
- Provide disclosure information regarding conflicts of interest and advisory fees. This information must be given to the investor up front.
If a representative is charging a level fee (that is, a set fee that is disclosed in advance) instead of a variable fee, the requirements are less burdensome. To be considered a level fee, the size of the fee must stay the same regardless of the size or frequency of the transaction, and there must be no additional commission. In these cases, the rep is required to:
- Provide a written statement of fiduciary status
- Comply with the standards of impartial conduct
- Document the reasons for recommending a level fee arrangement
How Will this Affect the Investment Advice Industry? How Will It Affect Securities Licensing?
The DOL rule is set to change the landscape of the investment advisory industry. But Chris Wilson, Senior Partner at New York Life Insurance Company, says that while the rule might lead to more paperwork, more signatures, and more forms, this is simply a matter of firms “adapting to the ever-changing industry.”
The rule will require reps to use the Best Interest Contract Exemption (BICE) if they want to sell variable annuities or indexed annuities. The Department of Labor determined that variable annuities, indexed annuities, and other similar types of annuities come with significant complexity and investment risk. The DOL also associates these types of annuities with “conflicted sales practices.” This is why such annuities are subject to the increased protection provided by the Best Interest Contract Exemption. Many experts in the industry predict this will cause a dramatic reduction in sales of variable annuities. That could mean less of a demand for reps with Series 6 licenses and more of a demand for Series 65 and 66 licenses.
Additionally, because the requirements are fewer for level fee advisors, many firms might move away from commission-based brokerage business. In fact, Merrill Lynch recently announced that after the DOL rule goes into effect on April 10, 2017, it will no longer offer commission-based brokerage IRA accounts. Instead, it will offer a new investment advisory program called Merrill Lynch One, which offers level fee investment advisory services. A level fee advisor is one who only receives a set fee for providing advisory services. This fee must be communicated in advance to the investor. In other words, a level fee advisor does not make commissions. Some examples of level fees are flat fees or fees that are a percentage of assets under management.
Experts have said that this move on the part of Merrill Lynch could signal a larger trend within the industry, a movement away from commission-based brokerage services. Anthony Zak of PNC agrees: “I think many firms are going to be moving from brokerage accounts to managed accounts.”
If so, it would mean more openings for people who have passed the Series 65 or 66 exam. That means now is the perfect time to start studying for your Series 65 or 66 exam.
Where Does Solomon Exam Prep Come In?
It turns out you’re in luck, because Solomon Exam Prep has just the materials you need. Our industry-leading study materials have helped thousands of students pass their licensing exams.
Our Series 65 and 66 Total Study Packages include an Exam Study Guide, an Online Exam Simulator, a Video Lecture, and an Audiobook. With these materials, you will have the tools you need to pass the Series 65 or 66 and enter the world of investment advisory services.
For more information, visit www.solomonexamprep.com or call us at 503-601-0212.
Capital markets in the United States are arguably the strongest in the world. Recent developments could strengthen them even more by making equity investing and equity capital-raising much more accessible. Continue reading
Capital markets in the United States are arguably the strongest in the world. Recent developments could strengthen them even more by making equity investing and equity capital-raising much more accessible.
In an effort to lower the cost and increase the availability of equity investing to small businesses, the SEC just adopted Regulation Crowdfunding (Title III of the Jobs Act adding Securities Act Section 4(a)(6)). These are the much-awaited final rules permitting equity crowdfunding, which allows small and startup companies to raise capital via the internet through relatively small contributions from investors.
Under the terms of the new rules, crowdfunding transactions for eligible U.S. companies will be exempted from SEC registration, provided
- the aggregate amount the issuer sells to all investors in a 12-month period does not exceed $1 million,
- The aggregate amount sold to any investor does not exceed a given percentage of that investor’s annual income or net worth (the greater of 2% or $5,000 for investors with either an annual income or net worth of less than $100,000; 10%, but not to exceed $100,000, for all others),
- The transaction is conducted through either a registered broker-dealer or a registered “funding portal”, and
- Issuers are in compliance with required SEC disclosure filings.
Certain companies are not eligible for the crowdfunding exception. These include all foreign-based companies, Exchange Act-reporting companies, certain investment companies, and companies that have previously failed to comply with crowdfunding reporting requirements.
Buyers of crowdfunding securities will be required to hold them for at least a year before they can resell them.
This alert applies to the Series 7, Series 24, Series 62, Series 79, and Series 82.