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Speaker 1: Global business news twenty four hours a day. It's Bloomberg

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Speaker 1: dot com, the radio plus mobile app and on your radio.

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Speaker 1: This is a Bloomberg Business flash from Bloomberg World Headquarters.

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Speaker 1: I'm Charlie Pellett. The SMP five index is within one

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Speaker 1: percent of a record rallies and energy producers and airline

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Speaker 1: operators offsetting slumping healthcare shares. Chevron and x on Mobile

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Speaker 1: adding at least one point six percent. Crude oil right

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Speaker 1: now up one point two percent fifty twenty seven for

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Speaker 1: a barrel of West Texas Intermedia crude. It is hired

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Speaker 1: by fifty eight cents Gold higher little changed, up forty

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Speaker 1: cents now twelve ounce, the ten year up nine thirty seconds,

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Speaker 1: with the yield there of right now, we've got the

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Speaker 1: yield on the tenure at one point seven percent again,

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Speaker 1: up nine thirty seconds. Gold little changed down as we mentioned,

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Speaker 1: by thirty cents. SMP up eight seventeen gain of point

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Speaker 1: four percent. Down, Industrial holds up seventy six points, a

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Speaker 1: gain of point four percent. I'm Charlie Pellet, and that

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Speaker 1: a Bloomberg business flash. You're listening to Taking stock with

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Speaker 1: Kathleen's and pim Fox on Bloomberg Radio. We are broadcasting

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Speaker 1: live at Pershing's Inside Twenties sixteen conference at the Higher

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Speaker 1: Regency in Orlando of Florida. Now to tell us more

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Speaker 1: about a very important ruling from the Department of Labor

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Speaker 1: having to do with fiduciary responsibilities is having to affect

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Speaker 1: not only registered investment advisers but also those who are

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Speaker 1: managing pension assets. Let's find out more from Robert Serati.

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Speaker 1: He is Managing Director Pershing Melan l l C. And

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Speaker 1: he is the head of the retirement and Investment Solutions

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Speaker 1: for Pershing. Thank you very much for being here, much appreciated,

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Speaker 1: Thanks for having us my pleasure. Thanks for having me

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Speaker 1: tell people what exactly the new rules from the Department

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Speaker 1: of Labor as much as you know them, because I

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Speaker 1: know that they are still being sort of finalized in

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Speaker 1: terms of the details. What you know about these new

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Speaker 1: rules and what is the most important thing that the

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Speaker 1: people here particularly need to know about. So first off,

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Speaker 1: the rule has been finalized. It was final finalized last month,

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Speaker 1: and today is actually the day that the rule is

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Speaker 1: officially effective. Um now effective means that it's a it's

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Speaker 1: a live, real rule. But the changes really come next

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Speaker 1: year when the compliance states kick in with regard to

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Speaker 1: what the Department of Labor was doing. UH. This is

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Speaker 1: all in an attempt to eliminate conflicts of interests associated

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Speaker 1: with investment advice that's given to retirement investors. UH. The

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Speaker 1: way that the Department went about making those changes is

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Speaker 1: essentially by looking to create a lower bar for what's

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Speaker 1: considered investment advice under ARISSA, and by lowering the bar

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Speaker 1: of what's investment advice, they're causing more advisors to become fiduciaries.

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Speaker 1: And when you become a fiduciary, you therefore have to

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Speaker 1: give advice that's in the best interest of your clients. Well,

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Speaker 1: rob most people in this industry would say, have always

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Speaker 1: of an advice that was in the best interests of

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Speaker 1: my clients. If I didn't do that, if my clients

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Speaker 1: didn't get good results over time, I wouldn't be in business.

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Speaker 1: That that's true, right, So, so many advisers and firms

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Speaker 1: feel that they do act in the best interests of

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Speaker 1: their clients, But when it comes down to the technical

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Speaker 1: rules that they're following and how that manifests itself. UH.

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Speaker 1: In the broker dealer market, brokers who are working on

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Speaker 1: a commission basis are required to meet a suitability standard

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Speaker 1: today under under finneral rules UM. And so that suitability

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Speaker 1: standard is very different from a best interest standard when

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Speaker 1: you have to essentially defend yourself from it UM. And

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Speaker 1: so it looks very different if you will under ARISKA

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Speaker 1: given the requirements and as a result of this rule,

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Speaker 1: some of the new exposures and liabilities that are created

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Speaker 1: for advisors and what it will mean for them to

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Speaker 1: not only give advice that's truly in their best interests,

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Speaker 1: but also then to have to defend it at that standard. Now,

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Speaker 1: to be a fiduciary under the risk rules you as

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Speaker 1: you describe, you have to act prudently solely in the

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Speaker 1: interest of his or her client. But there are also

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Speaker 1: specific prohibited transaction rules as I understand it, which can

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Speaker 1: trigger some tax penalties under tax law. What if you

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Speaker 1: could talk a little bit about that. Sure, So with

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Speaker 1: respect to UM prohibited transactions and when you need exemptions UM,

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Speaker 1: it's sort of counterintuitive candidly that under arissa UM getting

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Speaker 1: paid as a conflict. Uh So just to get paid

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Speaker 1: you need an exemption. And there are existing exemptions that

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Speaker 1: the industry relies on today that are so embedded in

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Speaker 1: the way that we've done business so for many years

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Speaker 1: that many advisers and aren't thinking about the exemption that

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Speaker 1: they're relying on when they're when they're doing business today. Um.

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Speaker 1: So what the Department has done is essentially say, um,

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Speaker 1: now that you have to act at this fiduciary standard

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Speaker 1: in this and meet this best interest standard of care. Um,

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Speaker 1: you now have to eliminate new conflicts around differentiated compensation,

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Speaker 1: the idea that I might get paid more if I

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Speaker 1: recommend one investment versus a different investment, and that differentiation

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Speaker 1: leads to this new set of requirements to say, if

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Speaker 1: you have that, you have to rely on these new exemptions.

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Speaker 1: So what they did was they narrowed some of the

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Speaker 1: existing exemptions that firms rely on today and they created

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Speaker 1: two new exemptions, the primary one being this best interest

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Speaker 1: contract exemption. So we use the language of exemptions, but

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Speaker 1: really what exemptions are is a path forward or its

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Speaker 1: relief from the conflict that would otherwise prevent you from

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Speaker 1: being able to be compensated. And so those are the exemptions.

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Speaker 1: That's the major exemption that the Department is called. Okay,

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Speaker 1: so a lot of investment advisors say that with these

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Speaker 1: new limitations, it will be harder to make money, and

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Speaker 1: therefore people with smaller investment accounts will have a harder

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Speaker 1: time finding an advisor who will represent them. This exemption

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Speaker 1: you just mentioned byes B, I, C E UH is

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Speaker 1: supposed to get around that to a certain extent by

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Speaker 1: allowing them to I just feel like the exception was

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Speaker 1: put in because the Department Labor realized that it was

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Speaker 1: handcuffing too many people and it had to put something

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Speaker 1: back in. So the people without a lot of money

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Speaker 1: because still got some investment advice. So so the exemption

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Speaker 1: is meant to facilitate um a continued ability to do

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Speaker 1: business on a commission basis. Essentially UM so so they

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Speaker 1: didn't want to be what they considered draconian in eliminating

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Speaker 1: commissions from the business. However, relying on the exemption creates

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Speaker 1: new exposure for firms and so given new exposures as

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Speaker 1: a result of reliance on that exemption in the form

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Speaker 1: of a contract UM and the liabilities that could created

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Speaker 1: in that contract, specifically the potential for class action lawsuits UM.

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Speaker 1: The advisors are UM sort of resident. If you will

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Speaker 1: to UM make sure that they're they're meeting all of

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Speaker 1: the requirements of the exemption, and to the extent that

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Speaker 1: those requirements caused them to put new process in place.

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Speaker 1: We talked about prudent process before. Right, there are new

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Speaker 1: costs that they may have to uh encourabe the very least.

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Speaker 1: They just have to take people what they're doing, what

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Speaker 1: they're charging, what they're paying for and why is that

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Speaker 1: inter nutshell? Right, they certainly have to do that. Um

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Speaker 1: and and uh, you know, this contract is really at

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Speaker 1: the heart of it though, UM and the fact that

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Speaker 1: they could be open to class action lawsuits, UM and

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Speaker 1: and so and so that really drives the concern that

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Speaker 1: firms have that they really have to validate the value

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Speaker 1: that they're providing to their investors. Robert Sirotti, thank you

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Speaker 1: so very much for joining. It's a complex question, but

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Speaker 1: a very big one. The Department of Labor's new fiduciary

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Speaker 1: rules were broadcasting live at Pershing's Insight conference in Orlando.

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Speaker 1: Coming up on taking stock well, artificial intelligence technology make

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Speaker 1: it more profitable to be in the financial industry. We'll

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Speaker 1: talk to one artificial intelligence expert about the latest trends