I can't guarantee much from my personal crystal ball, but looking across the regulatory horizon into 2016 there is one undeniable certainty: Securities attorneys will be just fine.
The sheer volume of complicated rulemaking that is pouring out of Washington bodes well for billable hours but not for bottom lines. Only time will tell which (if any) of my other predictions below come to pass, but don't fret about your JD friends…they'll be anything but bored.
1. Robo-advisors: Skepticism and scrutiny by the SEC
Regulators' skeptical attitude toward robo advice (and bias, some may argue) first reared its head in May when both FINRA and the SEC issued an Investor Alert that urged investors to be wary of "automated investment tools" for those 'tools' potentially conflicted advice, faulty assumptions, misguided outputs, lack of suitability and privacy misdeeds. It wasn't exactly an endorsement of innovation.
Fans were further flamed after attorney Melanie Fein published "Robo-Advisors: A Closer Look" in June, in which she concluded (after reviewing a sample of ADVs and client contracts) that robo-advisors "do not provide investment advice that is necessarily in the customer's best interest, are not free from conflicts of interest, do not necessarily minimize investment costs, and do not comply with the fiduciary standard of care under well-established fiduciary principles."
Commissioner Kara Stein may have tipped the SEC's hand during her November 9th remarks at Harvard Law School's Fidelity Guest Lecture Series (available here), or at the very least strongly suggested that robo advisors have made enough noise to catch the regulator's attention. Her concerns centered primarily on an algorithm's ability to fulfill traditional notions of the fiduciary standard, and she openly questioned whether inhuman investment advice "can be neatly placed within our existing laws."
My guess is that the running assumption behind closed doors at 100 F Street NW is a resounding 'No!' and the burden of proof will be on robo advisors to prove otherwise. I wouldn't be surprised if representatives from multiple divisions within the SEC "ask" to visit the major robo players' offices to – if nothing else – learn how exactly everything works.
2. Fiduciary rulemaking: An unmitigated politicized mess
But let me tell you how I really feel…
There are currently two heavyweight Washington bureaucracies trying to figure out this whole fiduciary thing. In one corner we have the Department of Labor, which received literally thousands of comment letters in response to its proposal to amend the ERISA definition of fiduciary, carve out a new best interest contract exemption, and tinker with various conflict requirements. The proposal resulted in nothing short of an industry maelstrom, with pundits, prognosticators and politicians all pounding the pulpit for their particular positions.
A final rule is expected out of the DOL by mid-year 2016.
In the other corner is the SEC, which has until recently been deflecting pressure to give a specific timetable for its much-anticipated uniform fiduciary standard rulemaking. That rulemaking – authorized by Section 913 of the Dodd-Frank Act – would elevate the standard of care due retail customers by broker-dealer representatives providing personalized investment advice to at least the standard imposed upon investment advisers. Such a proposal now appears to be officially on the 2016 SEC agenda, according to documents recently published through the Office of Management and Budget.
In a nutshell, a final DOL fiduciary rule and a proposed SEC fiduciary rule are both expected in 2016. Buckle up folks, the regulatory turf wars are only just beginning and the industry is caught in the middle.
There are those who say the DOL jumped the gun and should have waited to collaborate with the SEC before railroading its fiduciary vision into law. There are others who say the SEC simply took too long to act on its fiduciary vision and has only itself to blame for being late to the party.
Both arguments may have some merit.
But the bottom line is that this is a turf war without a winner, and it will take far too many billable hours to understand the conflicting and cumbersome knot that's being wrung around the industry's neck.
P.S.: If you want to read a much more eloquent and thoughtful perspective on these fiduciary shenanigans, check out SEC Commissioner Daniel Gallagher's comment letter to DOL Secretary Thomas Perez.
