Asset managers should focus on meeting the SEC's new reporting modernization rules and put Labor Department fiduciary rule prep on the back burner, according to several industry executives at the latest Investment Company Institute conference in Palm Desert, California.
Driving that perspective was widespread agreement among panelists and attendees that the DoL rule's implementation will ultimately be neutered by the Trump administration's efforts.
"Based on meetings here [the sentiment is] that the proposed DoL fiduciary rule is unlikely to pass in its current state, as it is currently postponed," said Stephanie Miller, senior vice president of fund administration business at SS&C Technologies.
Miller says in her discussions with management executives at the ICI Mutual Funds and Investment Management conference, she heard a willingness to cut losses on DoL compliance spending.
"They are much less married to their investments and much more positive looking forward that the rules will not impact them as much," she says.
The Labor Department delayed the applicability date of the fiduciary rule by 60 days in order to complete a review of the regulation ordered by President Trump.
Attendees picked up on an uncommonly high level of uncertainty from regulators and industry professionals regarding how the DoL rule will evolve, says Ann Marie Swanson, director of Alaric Compliance Services.
"Some panelists suggested the new administration might try to mitigate its impact by rolling back certain provisions or not enforcing them," she notes.
There was agreement among panelists that the DoL is likely to delay the fiduciary rule's applicability date, says ICI spokeswoman Rachel McTague.
"Later action by DoL to withdraw or modify the rule, based on is re-examination, would lead to significant market disruptions and confusion for retirement investors."
Swanson adds that despite uncertainty about the fiduciary rule being repealed, the industry at large is still moving ahead with efforts to comply with the rule.
SEC RULE FOCUS
There's less uncertainty however about the SEC's reporting modernization rules, which were adopted in October.
Swanson says conference attendees were more focused on compliance efforts in fund reporting to the SEC.
"We discussed how regulations such as the new Liquidity Rule (22e-4) will affect mutual funds and investment management companies, including the requirement to develop and implement a formal liquidity risk management program," she says.
Andrew Rogers, CEO of Hauppauge, New York-based Gemini Companies, says there is still much ground for firms to cover to meet the new SEC requirements for fund reporting.
"Rules around the liquidity rule are being discussed and there are many ideas about the roles of the Board, adviser, technology providers, and back office," Rogers says.
"In addition, various new filings must be systematically generated to manage the amount of information required. I believe there is acceptance in the industry and a focus on best practice."
Given the volume of information the new rules require, Swanson says attendees were receptive to SEC officials in attendance, including David W. Grim, director of the SEC's Division of Investment Management
"Many attendees empathized with the SEC's efforts to collect and evaluate the industry's big data to enhance fund reporting," she says.
"Some raised concerns related to the cost for funds to produce and deliver this detailed information to the Staff, and how quickly and effectively the SEC can use this vast amount of industry data."
SS&C's Miller says the focus on the SEC reporting modernization rules is because implementation will take effect in June of next year.
"Because fund managers have service providers that need time, and the asset managers that have sub-advisers worried about implementation, that's where we are going to provide solutions," Miller says. "The rules aren't concrete yet, but we are now looking at how to help."
Some conference attendees sought best practices and discussed their efforts at modernizing fund data reporting.
"We're already mobilized on the new reporting rules, and are engaged with our clients," notes Lisa Shea, senior product manager at Northern Trust.
"The volume of data and the tighter turnarounds with the N-PORT filing are key changes. Managers are focused on building out their liquidity risk management programs, and data from those programs will be a part of what informs the filings, so strong communications and collaboration between managers and service providers will be more important than ever."
Shea adds many of her colleagues were hoping the Trump administration would usher in a more collaborative approach between financial regulators and the fund industry.
"The hope is that we will see an environment of reasonable regulation — rules that maintain the well-intended objectives of investor protection and risk mitigation, without being overly prescriptive. The costs of compliance must also be reasonable to prevent the unintended impacts of additional costs or fewer choices for investors."
Gemini Companies' Rogers echoed her sentiment.
"I believe that the pendulum of regulation after the financial crisis swung too far to the expansion of regulation," he says. "The immense level of new rules are stagnating innovation and limiting the ability of key institutions to operate."
A regulation shift will provide positive energy resulting in growth of the financial services industry in the short term, but the longer term impact is clouded by the forces of passive investing and low cost products, Rogers adds.
"These long term trends are requiring entities to consider potential mergers to have the scale to survive in a shrinking revenue environment," he says.