Despite a sell-off on the last day of the month, equities held enough of their gains to post mostly positive month-over-month returns. The Trump administration imposed tariffs on steel and aluminum imports on Canada, Mexico, and the European Union. And, just before scheduled trade talks with China were to resume, President Trump announced that he would proceed with tariffs on Chinese imports and limit Chinese investment in U.S. tech companies. Investors feared retaliation from impacted countries could lead to an all-out trade war. Early in the month, signs of rising inflation sent large caps down, while small caps and tech stocks climbed. However, stocks recovered following the Fed’s decision to maintain the current interest rate range. Throughout the month, stocks rallied, then slipped back, amid trade war fears, a few mediocre corporate earnings reports, and fear of rising price inflation.

Nevertheless, each of the indexes listed here posted monthly gains, with the exception of the Global Dow. The large caps of the Dow and S&P 500 closed the month of May in the black, with the S&P 500 outperforming the Dow by more than a full percentage point. The Nasdaq and the Russell 2000 led the way for the month, each gaining more than 5.0% over their April closing values. Those two indexes have also performed the best since the start of 2018. The Dow and the Global Dow, on the other hand, are still trying to catch up to their 2017 closing values.

By the close of trading on May 31, the price of crude oil (WTI) was $67.10 per barrel, down from the price of $68.57 per barrel on April 30. The national average retail regular gasoline price was $2.962 per gallon on May 28, up from the April 30 selling price of $2.846 and $0.556 more than a year ago. The price of gold decreased by the end of May, closing at $1,302.70 on the last trading day of the month, down from its price of $1,316.10 at the end of April.

The Department of Labor’s Fiduciary Rule has clouded the investment industry for the past several years, causing much confusion for advisors and often creating more questions than answers. The ruling’s language and its enforcement dates have been a moving target, leaving many in the industry unsure of how they should conduct business and what paperwork would be necessary to meet the best practices and prohibited transaction exemption requirements. The back and forth came to its last major roadblock on March 15 when the Fifth Circuit Court of Appeals ruled 2-1 to repeal the DOL’s proposed fiduciary rule. The DOL had until June 13 to appeal that ruling but chose not to do so, although three states—New York, California and Oregon—and the AARP did request Congress to review the Fifth Circuit’s decision. That request made its way to the US Court of Appeals, which ruled it would not honor the requests, leaving the proposed DOL rule on life support prior to expiring on June 13.

With the DOL’s rule seemingly buried, advisors will now need to turn their attention to another fiduciary rule—the SEC’s.

The SEC Fiduciary Rule

For some time, it had become apparent that the SEC was going to weigh in with its own fiduciary ruling. On April 18 of this year, SEC Chairman Jay Clayton released a public statement on what he called “The Standards of Conduct for Investment Professionals.”

The SEC plan will focus on a variety of measures that are “designed to enhance the quality and transparency of investors’ relationships” with their investment advisors and broker-dealers.

• Disclosure document. The SEC wants to cut down on investor confusion by having advisors provide a brief disclosure document, which includes a summary of the client or customer relationship. For advisors, “additional information can be found in Form ADV. For broker-dealers, disclosures of the material facts relating to the scope and terms of the relationship would be required under Regulation Best Interest.”
• Reg BI. Under the proposed Regulation Best Interest, “a broker-dealer would be required to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer.”
• Standard of Conduct. The SEC ruling plans to strengthen “the standard of conduct that broker-dealers owe to their customers, reaffirming and, in some cases, clarifying the standard of conduct that investment advisers owe to their clients, and providing additional transparency and clarity for investors.”

The SEC has stated it would like to have a finalized and implemented rule by 2020.

Transparency and Best Practices

At Beacon, we have held firm to our foundational philosophy—no matter what happened to the DOL’s fiduciary rule or what evolves with the SEC’s rule, we will continue with our plans for a more transparent way to disclose fees and provide guidance for our advisor firms. We believe that the SEC’s fiduciary rule will not be as stringent as the DOL’s proposal, but it will include transparency as a best practice requirement. To learn more about how you can integrate these best practices into your practice, contact your wholesaler today!