The SEC’s controversial “Regulation Best Interest,” which took effect June 30, would likely be struck down in 2021 in favor of a true fiduciary standard if presumptive Democratic presidential nominee Joe Biden defeats President Donald Trump in the November election.
This according to a section titled, “Guaranteeing a Secure and Dignified Retirement,” in the recently released 2020 Democratic Party Platform draft.
“Democrats believe that when workers are saving for retirement, the financial advisors they consult should be legally obligated to put their client’s best interests first. We will take immediate action to reverse the Trump Administration’s regulations allowing financial advisors to prioritize their self-interest over their clients’ financial wellbeing,” the draft states on page 24 of the 80-page document.
Every four years, the Republican and Democratic parties typically put together their own platform document outlining the ideas and beliefs that govern each party as a whole. The Dems’ updated 2020 platform—which the Democratic National Committee calls “a roadmap” for how they plan to move America forward—could be amended by the platform committee before being ratified at the 2020 Democratic National Convention in Milwaukee Aug. 17-20, where the party will formally nominate Biden and his yet-to-be-announced vice president candidate to run against Trump and Vice President Mike Pence.
Interestingly, the Republican National Committee’s Executive Committee voted on June 10, 2020, to adopt the same platform the party used in 2016, essentially freezing the outdated document, although two days later President Trump called (via Twitter, of course) for a new and updated platform. With the workings of the Republican convention, scheduled for Aug. 24-27 in Charlotte, N.C., still in flux, it remains to be seen if the Republican platform will indeed be updated.
Reg BI at risk
While the Democratic Party’s updated platform draft does not mention Reg BI by name, it is clear the Democrats intend to roll it back and replace it with a “true” fiduciary standard if Biden wins.
Reg BI requires broker-dealer registered representatives to put clients’ interests ahead of their own, yet critics contend it is ineffective in its current form, confusing to consumers and too friendly to the industry’s interests as a lower, non-fiduciary standard that aligns with the National Association of Insurance Commissioners’ (NAIC) revised annuity suitability rule.
The Department of Labor’s recent prohibited transaction exemption (PTE) proposal that also aligns with Reg BI, were it to become a rule, would also likely be rolled back by Democrats in favor of a true fiduciary standard.
For nearly two decades now, the financial services industry has argued over whether or not to establish a fiduciary standard, which would require all types of advisors to put the client’s best interests first. In the meantime, several states including Massachusetts have moved forward with their own “true fiduciary conduct standard” in the absence of a federal regulation.
Here’s the majority of what the 2020 Democratic Party Platform draft had to say about Social Security, as noted on page 23 of the draft:
“Social Security is the most enduring thread in our nation’s social safety net. We will enact policies to make Social Security more progressive, including increasing benefits for all beneficiaries, meaningfully increasing minimum benefit payments, increasing benefits for long duration beneficiaries, and protecting surviving spouses from benefit cuts.
“We will eliminate penalties that unfairly reduce public sector workers’ earned Social Security benefits. In light of weakened retirement security for unpaid caregivers and caregivers for family members, who sacrifice not only wages but Social Security benefits when they swap paid labor for unpaid care work, Democrats support Social Security reform which better accounts for the challenges facing unpaid caregivers—including incremental reforms to the benefit formula to mitigate the penalty for unpaid care.
“Democrats will reject every effort to cut, privatize, or weaken Social Security, including attempts to raise the retirement age, diminish benefits by cutting cost-of-living adjustments, or reduce earned benefits. We will ensure Social Security will be there forever.”
Biden has previously said he would like to eliminate the Social Security earnings cap as a way to preserve and strengthen the program, essentially by requiring the wealthy to pay into it at the same rate as everyone else. For 2020, wages above $137,700 are not subject to the payroll tax.
Critics say removing the income cap would transform Social Security into a strong income redistribution plan, as the wealthy earners would receive basically no additional benefits for paying higher Social Security taxes.
Pensions and pooled plans
The “Guaranteeing a Secure and Dignified Retirement” section of the 2020 Democratic Platform draft also talks about protecting pensions and reforms to make it easier for states and municipalities to create individual and pooled retirement account options.
“Democrats will protect Americans’ retirement security, especially in the midst of the COVID-19 pandemic, and take action to protect public and private pensions to ensure workers keep the benefits they have earned, including through multiemployer plans,” the draft says. “We support amending federal bankruptcy laws to protect workers’ earned pensions from being taken away by employers going through bankruptcy.”
The HEROES Act, a $3 trillion stimulus bill passed in the Dem-controlled House of Representatives in May but never had a chance in the Republican-controlled Senate, includes relief for troubled multiemployer pension plans. That figures to be one of many provisions Democrats will try to wedge into the next stimulus bill, with negotiations heating up this week after Republicans released their $1 trillion stimulus proposal.
Without providing specific details, the Democratic Platform draft also supports federal legislation “to make it easy for all workers to save, not just those in states or municipalities that have established their own programs.”
What follows are a few other notable statements from the 2020 Democratic Party Platform draft of interest to advisors:
Tax reform
- “Democrats will take action to reverse the Trump Administration’s tax cuts benefiting the wealthiest Americans and rewarding corporations for shipping American jobs overseas. We will crack down on overseas tax havens and close loopholes that are exploited by the wealthiest Americans and biggest corporations.”
- “We will make sure investors pay the same tax rates as workers and bring an end to expensive and unproductive tax loopholes, including the carried interest loophole. Corporate tax rates, which were cut sharply by the 2017 Republican tax cut, must be raised, and ‘trickle-down’ tax cuts must be rejected. Estate taxes should also be raised back to the historical norm.”
Trump’s 2017 tax cuts dropped the corporate income rate from 35% to 21%. Biden has said he wants to raise the rate to 28%, and has also called for a 15% minimum tax on large corporations.
Curbing Wall Street Abuses
- “Democrats will work to reverse the over-financialization of the American economy and curb Wall Street speculation by maintaining and expanding safeguards that separate retail banking institutions from more risky investment operations, and ensuring Wall Street investors pay their fair share in taxes.”
- “We will strengthen and enforce the Obama-Biden Administration’s Dodd-Frank financial reform law, including the Volcker Rule, to protect American workers from the impacts of future financial crises, and will support an updated and modernized version of Glass-Steagall. And when justified by the law, we will back criminal penalties for reckless executives who illegally gamble with the savings and economic security of their clients and American communities.”