House Republicans leading the charge to repeal the Labor Department’s fiduciary rule want toreplace it with their own definition of a best interest standardfor investment advice.

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Republican proposals would allow brokers and insurance agents tosell proprietary products and earn commissions without accessingthe prohibited transaction exemptions created in the fiduciaryrule.

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Related: As more retirement investors drop theF-bomb, Wilshire reaps the benefits

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The question for lawmakers, stakeholders, and regulators iswhether a best interest standard as defined in the legislationwould be any improvement over the suitability standard.

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FINRA Rule 2111 defines the parameters for thesuitability of an investment recommendation. Obama-era regulators,consumer advocates, and fiduciary proponents see the suitabilitystandard as an unsuitable protection against conflicts ofinterest.

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Under rule 2111, brokers must execute “reasonable diligence” inrecommending an investment, and account for individual profiles,which “includes, but is not limited to, the customer’s age, otherinvestments, financial situation and needs, tax status, investmentobjectives, investment experience, investment time horizon,liquidity needs and risk tolerance,” according to the rule.

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One of the obligations needed to meet the suitability standardis a quantitative requirement, designed to protect against excesstrading activity, or churning.

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In 2016, FINRA brought 1,434 disciplinary actions againstregistered individuals and firms, and levied $176.3 million infines. As a result, FINRA expelled 24 firms from the securitiesindustry. More than 700 brokers were suspended, and over 500prohibited from associating with FINRA-regulated firms. Nearly $30million was returned to harmed investors.

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Under the Republican proposals, which task the Securities and Exchange Commission withcreating a new fiduciary standard, the suitability standard wouldbe replaced by a best interest standard, which would include a newrequirement to disclose potential conflicts of interest toclients.

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Whether or not that would create more protections fromconflicted advice than the suitability standard depends on whom youask.

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In a subcommittee hearing held by the House Financial ServicesCommittee this week, Jerome Lombard, president of the privateclient group at Philadelphia-based Janney Montgomery Scott, saidthe best interest standard laid out in a discussion draft of legislation sponsored by Rep.Ann Wagner, R-MO, goes above and beyond the suitabilitystandard.

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“It clearly is a higher standard than suitability,” Lombardsaid. Under Wagner’s bill, the best interest standard would applyto all investment recommendations, whereas the fiduciary rule onlyapplies to recommendations on assets in qualified retirementaccounts.

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Democratic lawmakers were unsatisfied with that assessment,claiming several times during the hearing that Wagner’s alternativeto the fiduciary rule is a “watered down” standard that will failto protect investors from conflicted advice.

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Cristina Firvida, director of financial security and consumeraffairs at AARP, criticized Wagner’s best interest standard as toovague.

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“Disclosure alone is not enough,” Fivrida said of Wagner’s bill,adding that it does not go far enough in specifying how brokers canmanage conflicts of interest.

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.