WASHINGTON -- Whether or not the Department of Labor's long-delayed and controversial fiduciary rule ultimately becomes the law of the land is almost beside the point, according to Jack Brennan, the former Vanguard CEO who now chairs FINRA's board of directors.
The highly publicized debate has already reshaped business practices and investor expectations, so that the best-interest measure of advice is on its way to becoming the de facto industry standard, Brennan argues.
He expects FINRA and the SEC will eventually move on crafting similar regulations, shoring up a trend that the Labor Department started when it unveiled the fiduciary rule in April 2016.
"Whatever happens to DoL, it served its purpose by getting the 'best interest' terminology into the industry and into the press and into a lot of things," Brennan told attendees at FINRA's annual conference, where he sat for an on-stage interview with Robert Cook, the regulator's CEO.
Brennan suggested that the term fiduciary is a "highfalutin kind of word" that did little to help the issue gain traction with investors.
As to the fate of the Labor Department's rule, the future is anything but certain. The department has already moved once to delay implementation of the rule, which is now set to take effect June 9, though rumors abound that officials could seek a further delay or move to shelve the regulation entirely.
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So how should firms respond? Stay the course, argues Brennan.
"My own view is that firms should keep on that track because ... it's going to be the way business is done. The question is, is it on June 10, or is it on June 10, 2022," he says.
In any case, even if the Labor Department abandons or significantly alters its proposal, Brennan anticipates that the SEC or FINRA could move ahead with similar regulations governing investment advice. Both regulators have been sending signals that they expect advisers to place their clients' interests above their own when making investment recommendations.
"That channel is not locked, in a sense, by the Department of Labor," he says. "My guess is the SEC and FINRA are going to go down that path, because it's the right place to be."
So for brokerage firms that may not be currently bound by a best-interest standard of advice, Brennan believes that the smart move is to get "front and center around best interest and a plan to ensure that's who you are as a firm down the road, irrespective of whether it's required by DoL."
"Because it's hard for me to imagine that the SEC and FINRA aren't going to follow that path," he says.
If anything, the months of preparations for the Labor Department's rule, when many firms retooled their product offerings and service models, demonstrated to Brennan that a best-interest standard for advice is eminently workable, and stand as an "unbelievable tribute" to the adaptiveness of the industry.
"Seeing what the industry did with the prospect of the rule shows that it can be done, and the adviser can still have a very good income and the firms can do well," he says. "It's just as much a mindset change, recognizing that this transition has to occur."
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