Global business news twenty four hours a day. It's Bloomberg dot com, the radio plus mobile app and on your radio. This is a Bloomberg Business flash from Bloomberg World Headquarters. I'm Charlie Pellett. The SMP five index is within one percent of a record rallies and energy producers and airline operators offsetting slumping healthcare shares. Chevron and x on Mobile adding at least one point six percent. Crude oil right now up one point two percent fifty twenty seven for
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gain of point four percent. I'm Charlie Pellet, and that a Bloomberg business flash. You're listening to Taking stock with Kathleen's and pim Fox on Bloomberg Radio. We are broadcasting live at Pershing's Inside Twenties sixteen conference at the Higher Regency in Orlando of Florida. Now to tell us more about a very important ruling from the Department of Labor having to do with fiduciary responsibilities is having to affect not only registered investment advisers but also those who are
managing pension assets. Let's find out more from Robert Serati. He is Managing Director Pershing Melan l l C. And he is the head of the retirement and Investment Solutions for Pershing. Thank you very much for being here, much appreciated, Thanks for having us my pleasure. Thanks for having me tell people what exactly the new rules from the Department of Labor as much as you know them, because I know that they are still being sort of finalized in
terms of the details. What you know about these new rules and what is the most important thing that the people here particularly need to know about. So first off, the rule has been finalized. It was final finalized last month, and today is actually the day that the rule is officially effective. Um now effective means that it's a it's a live, real rule. But the changes really come next year when the compliance states kick in with regard to
what the Department of Labor was doing. UH. This is all in an attempt to eliminate conflicts of interests associated with investment advice that's given to retirement investors. UH. The way that the Department went about making those changes is essentially by looking to create a lower bar for what's considered investment advice under ARISSA, and by lowering the bar of what's investment advice, they're causing more advisors to become fiduciaries.
And when you become a fiduciary, you therefore have to give advice that's in the best interest of your clients. Well, rob most people in this industry would say, have always of an advice that was in the best interests of my clients. If I didn't do that, if my clients didn't get good results over time, I wouldn't be in business. That that's true, right, So, so many advisers and firms feel that they do act in the best interests of their clients, But when it comes down to the technical
rules that they're following and how that manifests itself. UH. In the broker dealer market, brokers who are working on a commission basis are required to meet a suitability standard today under under finneral rules UM. And so that suitability standard is very different from a best interest standard when
you have to essentially defend yourself from it UM. And so it looks very different if you will under ARISKA given the requirements and as a result of this rule, some of the new exposures and liabilities that are created for advisors and what it will mean for them to not only give advice that's truly in their best interests, but also then to have to defend it at that standard. Now, to be a fiduciary under the risk rules you as you describe, you have to act prudently solely in the
interest of his or her client. But there are also specific prohibited transaction rules as I understand it, which can trigger some tax penalties under tax law. What if you could talk a little bit about that. Sure, So with respect to UM prohibited transactions and when you need exemptions UM, it's sort of counterintuitive candidly that under arissa UM getting paid as a conflict. Uh So just to get paid
you need an exemption. And there are existing exemptions that the industry relies on today that are so embedded in the way that we've done business so for many years that many advisers and aren't thinking about the exemption that they're relying on when they're when they're doing business today. Um. So what the Department has done is essentially say, um, now that you have to act at this fiduciary standard
in this and meet this best interest standard of care. Um, you now have to eliminate new conflicts around differentiated compensation, the idea that I might get paid more if I recommend one investment versus a different investment, and that differentiation leads to this new set of requirements to say, if you have that, you have to rely on these new exemptions.
So what they did was they narrowed some of the existing exemptions that firms rely on today and they created two new exemptions, the primary one being this best interest contract exemption. So we use the language of exemptions, but really what exemptions are is a path forward or its relief from the conflict that would otherwise prevent you from being able to be compensated. And so those are the exemptions.
That's the major exemption that the Department is called. Okay, so a lot of investment advisors say that with these new limitations, it will be harder to make money, and therefore people with smaller investment accounts will have a harder
time finding an advisor who will represent them. This exemption you just mentioned byes B, I, C E UH is supposed to get around that to a certain extent by allowing them to I just feel like the exception was put in because the Department Labor realized that it was handcuffing too many people and it had to put something back in. So the people without a lot of money because still got some investment advice. So so the exemption is meant to facilitate um a continued ability to do
business on a commission basis. Essentially UM so so they didn't want to be what they considered draconian in eliminating commissions from the business. However, relying on the exemption creates new exposure for firms and so given new exposures as a result of reliance on that exemption in the form of a contract UM and the liabilities that could created in that contract, specifically the potential for class action lawsuits UM.
The advisors are UM sort of resident. If you will to UM make sure that they're they're meeting all of the requirements of the exemption, and to the extent that those requirements caused them to put new process in place. We talked about prudent process before. Right, there are new costs that they may have to uh encourabe the very least. They just have to take people what they're doing, what they're charging, what they're paying for and why is that
inter nutshell? Right, they certainly have to do that. Um and and uh, you know, this contract is really at the heart of it though, UM and the fact that they could be open to class action lawsuits, UM and and so and so that really drives the concern that firms have that they really have to validate the value that they're providing to their investors. Robert Sirotti, thank you so very much for joining. It's a complex question, but
a very big one. The Department of Labor's new fiduciary rules were broadcasting live at Pershing's Insight conference in Orlando. Coming up on taking stock well, artificial intelligence technology make it more profitable to be in the financial industry. We'll talk to one artificial intelligence expert about the latest trends