An appeals court ruling that vacated the fiduciary rule was tragic for investors and prompted Wall Street trade groups to double down on calls for harmonizing regulatory standards.
Those opposed to the Department of Labor's regulation would prefer to see the SEC create a unified best interest standard for financial advisors and brokers (note, it's not a fiduciary standard). And SEC Chairman
However, the 5th U.S. Circuit Court of Appeals'
In writing for the majority in the 2-1 ruling, Judge Edith Jones focused on the definition of “advice" and recounted established legal precedent. The judge cited the scope of fiduciary responsibility under the Employee Retirement Income Security Act of 1974. A fiduciary "renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or any property of such plan.” The key here is compensation for advice.
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Merrill Lynch, UBS and others made considerable alterations to policies and procedures in order to be compliant with the Labor Department regulation.
March 19 -
Even after a federal appeals court struck down the rule, more clashes over the regulation of sales versus advice are inevitable.
March 19 -
The Department of Labor has an incentive to defend its rule-making authority even though it is considering revisions to the regulation.
March 16
The judge said that the Labor Department redefined this provision in crafting its
It is the difference between rendering investment advice for a fee and getting compensation from “any advice” associated with a sales transaction that matters. The judge said Congress was well aware of this distinction and, purposely did not include any advice.
The judge further drew out this distinction by highlighting what she said was the SEC’s basic concept “tying investment advice for a fee to ongoing relationships between adviser and client.” These relationships in the SEC's view, the judge notes, cultivates intimacy between advisor and client.

In contrast, brokers who give incidental advice are not fiduciaries unless they've come to occupy a position of trust with their customers, the judge says.
The appeals court decision sets out a compelling rationale for why demarcation is the best way forward. Distilled, it is this: Incidental advice is not and cannot be real advice because of their opposing functions.
In a sales capacity, a broker-dealer represents issuers, whereas investment advisors represent clients. A broker-dealer — who is contractually obliged to the issuer and paid by the issuer, contingent upon completing sales to distribute products — sells products. He or she may not consider, much less appreciate, how or why guidance tied to a product recommendation is not real advice.
The cultures and languages of sales versus advice are too different to be joined by legal writing that, among other things, serves to cloak the very differences the appeals court decision explains are so important.
The judge argues for the logic and reasonableness in demarcation. Her ruling also argues for the central importance of reforming job titles, reinforcing a clear line between brokers and advisors.
Finally, it argues that it's time for these two groups to go their separate ways.