The following brief updates exemplify trends and areas of current focus of relevant regulatory authorities: 

DOL Fiduciary Rule Update

In August, the Department of Labor (“DOL”) held four days of hearings debating its proposed fiduciary rule, which would expand the scope of service providers subject to the fiduciary requirements under Section 3(21) of ERISA and Section 4975(e) of the Internal Revenue Code. The DOL asserts the new rule will curb incentives for brokers to place clients into high-fee products. However, opponents contend that the net effect of the proposed rule will be to limit the ability of investors to receive personalized investment guidance for retirement accounts. SEC Commissioner Gallagher expressed serious concern over the proposed rule in a July comment letter addressed to DOL Secretary Perez, stating that the proposed rule is “grounded in the misguided notion that charging fees based on the amount of assets under management is superior in every respect and for every investor to charging commission based fees.” The DOL had reopened the comment period on its proposed fiduciary rule through September 24th. A final rule is expected to be issued in early 2016.

Media Attention to Adequacy of Risk Disclosures for Bank Loan Funds

A recent New York Times article entitled Vague Disclosures by Highflying Mutual Funds May Put Investors in Peril drew mainstream media attention to the question of whether funds that invest in bank loans have adequately disclosed to investors the risks associated with such investments. The article questioned references to bank loans as “junk securities,” and whether bank loan funds should have disclosure that the loans may not be protected against fraud under federal securities laws. The article further reported that many mutual funds buying bank loans fail to disclose whether they receive confidential information from the companies issuing the obligations and, if so, how they deal with this information.