Here is an update on the status of fiduciary rules recently finalized by the Department of Labor (DOL).
PROPOSED DOL REGS IN APRIL 2015
The DOL proposed on April 14, 2015 sweeping new regulations governing retirement accounts and IRAs which would exclude listed options and futures as permissible investments.
FINAL DOL REGS IN APRIL 2016
On April 6, 2016, the DOL released its final Conflict of Interest Rule and related exemptions, which are available at http://www.dol.gov/ebsa/regs/conflictsofinterest.html.
The final rule and related exemptions permit all asset types, including exchange-traded options and futures, to be used in ERISA plans (401(k)) and IRAs. Compliance with the new requirements of the rule will not begin until April 2017, one year after the final rule is published in the Federal Register.
In a statement issued to the press, Edward T. Tilly, CEO of CBOE Holdings, noted that —
“The DOL Fiduciary Proposal raised significant issues for the U.S. options industry. CBOE’s foremost concern was that the Proposal would eliminate the ability of investors to use exchange-traded options and futures in ERISA plans (401(k)) and IRAs. We are pleased that in response to comments from various parties, including CBOE, our customers and the U.S. Securities Markets Coalition, the Proposal was modified to cover all asset types, including options and futures. CBOE is grateful to members of Congress, from both sides of the aisle, who took the time to study this complex issue and to sign letters to the DOL in support of our position. We are also grateful to the DOL for understanding and ultimately addressing the importance of allowing investors to continue to use exchange-traded options and futures in their retirement accounts and IRAs.”
In the April 9, 2016, Striking Price column in Barron’s, Steve Sears wrote —
“Last week, the Labor Department backed away from a controversial plan to ban the use of options in retirement accounts. … The fiduciary rule, which becomes effective in April 2017, replaces a more permissive suitability rule that lets advisors deliver investment products as long as they reflect a client’s needs, goals, and financial wherewithal. … Now Wall Street’s lawyers are reading every page of the voluminous rule to make sure nothing interferes with the ability to trade options. The options industry, for instance, is trying to understand how, if at all, the fiduciary standard applies to investor education. … As we have averred many times, if we had to choose between more government regulation and investor education, we wouldn’t hesitate to select the latter. …”
LINKS TO MORE INFORMATION
CBOE’s Comment Letter U.S. Securities Market Coalition Comment Letter Testimony on Proposed Conflict of Interest Rule July 29, 2015 DOL Letter from Members of Congress September 24, 2015 DOL Letter from Members of Congress
CERTAIN OPTIONS STRATEGIES WITH LOWER VOLATILITY
Some investors can ask “Can options add value to a retirement portfolio, or are options too risky for use in a retirement portfolio?” Today investors are confronted with challenges such as low interest rates, and at the webpage www.cboe.com/benchmarks there is evidence (in white papers and performance benchmark indexes) which shows that certain options-based indexes, such as the CBOE S&P 500 30-Delta BuyWrite Index (BXMD), have had higher returns and lower volatility than the S&P 500 and MSCI EAFE indexes over a 29½-year period. Of course, not all options strategies outperform all the time, and some options strategies are used for leverage, but to see comparisons of benchmark indexes and fund performance, investors are invited to view these papers at www.cboe.com/benchmarks —